ADDITIONAL FINANCING: RESPONDING TO NEW NEEDS PROGRESS REPORT

OPERATIONS POLICY AND COUNTRY SERVICES Investment Lending

January 26,2009

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ABBREVIATIONS AND ACRONYMS

AF AFR APL CDD DO EAP ECA FY IBRD IDA IL IP ISR LCR MICs MNA OPCS

QEA8 ROC SAR

QAG

Additional financing Africa Region Adaptable Program Lending Community-driven development Development objective East Asia and Pacific Region Europe and Central Asia Region Fiscal year International Bank for Reconstruction and Development International Development Association Investment lending Implementation progress Implementation Status Reports Latin America and Caribbean Region Middle Income Countries Middle East and North Africa Region Operations Policy and Country Services Quality Assurance Group Quality at entry assessment for FY06-07 Regional Operations Committee South Asia Region

.. 11

I . I1 . I11 .

I V . V . V I .

ADDITIONAL FINANCING: RESPONDING TO NEW NEEDS PROGRESS REPORT

CONTENTS

Introduction ........................................................................................................................ 1

Background ........................................................................................................................ 1

Progress to Date ................................................................................................................. 2 A . Profile o f AF to date ................................................................................................... 3 B . Simplification and processing o f AF .......................................................................... 6 C . Implementation o f additional financing operations .................................................... 8

Lessons Learned ................................................................................................................. 9

Adjustments Recommended ........................................................................................... 11

Conclusion ........................................................................................................................ 12

Annexes

Annex A . Investment Operations Summary Tables. FY05-08 .................................................... 15 Annex B . Examples o f Addit ional Loans for (a) Amounts over $ 100 m i l l i on or (b) Emergency Responses ...................................................................................................................................... 22

Boxes

B o x 1 . Examples o f AF Projects for Scaling-up ............................................................................ 6 B o x 2 . Consultations with Clients on Additional Financing ......................................................... 9

Tables

Table 1 A . Number o f Lending Operations by Fiscal Year. FY05-08 ........................................... 3 Table 1B . Volume o f Lending Operations by Fiscal Year. FY05-FY08 ....................................... 3 Table 2 . AF Operations by Region. FY05-08 ............................................................................... 4 Table 3 . Distribution o f AF by Purpose. FY05-08 ........................................................................ 6 Table 4 . Average Preparation Cost and Time. FY05-08 ............................................................... 7

Figures

Figure 1 . Number o f AF for IDA and IBRD. FY05-08 ................................................................. 4 Figure 2 . AF as Percentage o f Original Loan or Credit. FY05-08 ................................................ 5

ADDITIONAL FINANCING: RESPONDING TO NEW NEEDS PROGRESS REPORT

I. INTRODUCTION

1. Quick and simple are not words normally used to describe the Bank’s responsiveness to clients especially when it comes to investment lending. But they suit we l l the experience so far with additional financing (AF). Introduced as an instrument in 2005, AF has been an effective tool that has made a difference on the ground. Designed in response to limitations o f the Bank’s po l icy on supplemental financing, which focused on dealing with project cost overruns, AF has not only f i l led a gap in the Bank’s toolkit but has demonstrated the feasibility o f delivering finance and technical support rapidly, at l o w cost and with satisfactory quality, largely within a l o w risk setting. As wil l be shown in this progress report, AF has met client and staff needs evidenced by i t s rapid take-up, and i t s evolution f rom financial shortfalls to scaling up successful operations. I t has also served as a harbinger o f the potential o f future pol icy reforms for investment lending that can unlock the Bank’s potential to deal with evolving demands of clients and partners through greater f lexibi l i ty and improved risk management.

2. Purpose and Structure of the Paper. This progress report examines quantitative and qualitative aspects o f the Bank’s experience with AF, drawing on a desk review o f AF operations approved through the end o f FY08, the Quality Assurance Group’s (QAG’s) assessments of AF operations, interviews with Bank staff, and consultations with frequent users o f the AF instrument. Fol lowing this introduction, Section I1 o f the paper provides some background on the origination o f AF fol lowed ‘by a description o f h o w AF has been used through June 2008 (Section 111). Section IV sets out lessons o f that experience, and Section V presents several recommended adjustments for AF that can expand i t s benefits. Section VI presents the conclusions and recommendations. Annexes provide additional and supporting information.’

11. BACKGROUND

3. On M a y 19, 2005, the Executive Directors approved a new pol icy on AF for investment lending (set out in OP/BP 13.20, Additional Financing), replacing the previous pol icy on supplemental financing.2 The change in pol icy had three objectives: to (a) scale up the impact and effectiveness o f the Bank’s development assistance; (b) reduce transaction costs to borrowers and the Bank; and (c) realign the Bank’s policies with borrower needs, the results agenda, and the evolving design and programmatic focus o f investment lending.

4. Under the pol icy on supplemental financing3, the Bank could provide a separate, supplemental loan to finance a cost overrun that was “due to exceptional circumstances beyond

The quantitative analysis excludes additional financing provided under trust fjmds, which are not covered under the existing OP/BP 13.20. Also excluded are operations under the Food Price Crisis Program, which are subject to a separate review. See From Supplemental Financing to Additional Financing: Responding to New Needs (R2005-005/2), M a y 19, 2005. OP/BP 13.20, Supplemental Financing, June 1994, Archived May, 2005.

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the borrower’s control” and could process that loan through expedited procedures. This pol icy allowed the Bank to provide significant and timely benefits to borrowers but with this narrow focus, targeted mainly to traditional capital investment projects. I t was not intended for nor did the pol icy permit a broader application to meet legitimate needs for increased financing under Bank operations that might surface during implementation nor could it facilitate the scale-up o f the development impact o f successful projects.

5. What does AF Offer? AF retained important aspects o f the supplemental financing policy: the Bank would provide AF only when it was satisfied that (a) implementation o f the project, including substantial compliance with loan covenants, i s satisfactory, and (b) the additional loan i s economically justified. L i ke supplemental loans, AF loans4 would constitute new loan commitments and would require Board approval, which wou ld be sought under streamlined procedures. The new pol icy also introduced three important changes:

0 I t allowed the Bank to provide AF to support expanded activities that are consistent with the objectives o f the existing project and would scale up that project’s impact, results, and development effectiveness.

0 I t allowed the Bank to be more responsive to client circumstances and needs that emerge during project implementation by providing AF to help meet the cost of modif ied activities as part o f project restructuring, when the original loan amount i s insufficient to cover such activities.

I t required that any activities to be financed with an additional loan be (a) consistent with the development objectives o f the original project and with the Country Assistance Strategy or Country Partnership Strategy, (b) appraised by the Bank, and (c) achievable within three years after the current closing date o f the original project.

6. As with supplemental financing, the financial terms o f AF wou ld be determined independently o f the terms o f the original loan. Because activities funded under this pol icy would be based on projects that were already being successfully implemented, they would by definition be lower in risk and subject to simplified documentation and decision processes. Specifically, n o formal concept review was needed and a simpli f ied project paper format was used to present the operation. Board approval was to be o n a streamlined basis. To ensure consistent application o f the new pol icy and procedures across sectors and Regions, i t was decided that Operations Policy and Country Services (OPCS) would review Concept Memoranda for al l additional financing proposals and report back to the Executive Directors o n lessons of experience and plans for next steps.

111. PROGRESS TO DATE

7. AF has been widely used across Regions and sectors, has generated considerable savings in time and cost, has been o f generally high quality, and has been appreciated by clients. H o w important i s AF in the universe o f investment lending? Did simplification work? And how did

For the purpose o f this paper, “loans” include IDA credits and IDA grants. 4

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these operations perform to date? These are some o f the questions that this section wil l try to address.

A. Profile o f AF to date

8. Uptake has been significant, accounting for one of four investment lending (IL) operations in FYO8. By June 2008, AF had been used to finance about $4.6 b i l l ion o f lending through 144 operations. Growth o f the use o f AF has been rapid as can be seen in Table 1 below. In FY08, AF as a share o f a l l IL operations reached 24 percent in number with a smaller proportion by lending volume (about 11%). The level o f AF operations and volume in both FY07 and FY08 has been similar but i t i s too early to te l l whether the use o f AF has reached something o f a steady state. In contrast, supplemental financing (the predecessor to AF) had a much more modest performance and supported a total o f 42 operations between FYOl and FY04.’ What can be concluded i s that AF has become a mainstream instrument that i s meeting an important need.

Table 1A. Number o f Lending Operations by Fiscal Year, FY05-08 No. of loans

Fiscal IDA IBRD I D A and IBRD year A F A l l I L % A F A F A l l I L % A F A F A l l I L % A F FY05 5 131 4% 0 93 0% 5 224 2 Yo FY06 13 143 9% 3 92 3% 16 235 7% FY07 47 152 31% 15 89 17% 62 24 1 26% FY08 48 169 28% 13 83 16% 61 252 24% Total 113 595 19% 31 357 9 yo 144 952 15%

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Source: Business Warehouse.

Table 1B. Volume of Lending Operations by Fiscal Year, FY05-FY08 Commitment Amount

Fiscal IDA IBRD I D A and IBRD year A F A l l I L % A F A F A l l I L % A F A F A l l I L % A F FY05 54 6228 1% 0 9070 0% 54 15298 0% FY06 570 7022 8% 203 9229 2 Yo 772 16251 5% FY07 1,082 9,107 12% 778 9149 9% 1,859 18,256 10% FY08 1,297 8,553 15% 655 9501 7% 1,951 18,054 11% Total 3,002 30,909 10% 1,635 36,949 4% 4,637 67,859 7 yo

Source: Business Warehouse.

9. AF has had wide applicability across Regions, with an especially strong presence in IDA countries. AF has played an important role in al l Regions as shown in Table 2, ranging from the relative l ow level o f 6 percent o f operations in the East Asia and Pacific Region, to 19 percent in the Afr ica Region and the high level o f 28 percent in the South Asia Region. Looking back at Table 1 and as presented in Figure 1 below, there i s a high preference for its use in IDA countries, with IDA accounting for about 78 percent o f the total (1 13 o f 144 operations). The Lat in America and the Caribbean Region runs counter to this trend with the bulk o f AF going to IBRD operations. Available data does not give a definitive answer as to why IDA i s predominant. But the high

See From Supplemental Financing to Additional Financing: Responding to New Needs (R2005-005/2), M a y 19,2005. 5

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incidence o f the use o f AF for scaling up projects (68 percent) as shown in Table 3 and discussed in para. 13 below may provide part o f the answer. The more extensive use o f AF may be related to the insufficient levels o f IDA available to these programs at the time o f their initial design. Hence, for those that are doing well, the option to scale them up at a later stage when IDA i s more accessible is an attractive option. In contrast, AF may be a less popular tool for M ICs where more o f the Bank’s work i s directed to innovative or pioneering operations that countries scale up on their own. Looking at the experience from the Lat in America and Caribbean Region there may be scope to consider increased use o f AF for IBRD countries in other Regions.

Source: Business Warehouse.

Table 2. A F Operations by Region, FYO5-OS

Region A l l I L A F IL A F IL A F AFR 265 51 19% 14,682 1,386 9% 55 27 EAP 138 8 6% 1 1,772 369 3% 85 46 ECA 198 22 11% 12,624 607 5% 64 28 LCR 189 23 12% 11,639 914 8% 62 40 MNA 47 8 17% 3.146 147 5% 67 18

Investment loans (#) Total am oun t ($m) Average commit ($m)

SAR 115 32 28% 13,997 1,214 9% 122 38 Total 952 144 15% 67,859 4,637 7% 71 32

Source: Business Warehouse.

Figure 1. Number of A F for I D A and IBRD, FYO5-OS 180 1 IDA-AF 0 IDA-All IL w IBRD-AF o IBRD-All It

1 n FY06 FY07 FYO8

10. AF serves the needs of social as well as infrastructureprograms. AF was used in most sectors, in approximately the same proportions as for other investment lending, except for the information and communications sector, which has not yet used AF. This finding runs somewhat counter to expectations when AF was introduced that had considered infrastructure projects to be the main area where the new instrument would be utilized. The data in Annex A show that about 23 percent o f a l l AF lending has been channeled to human development operations as opposed to 35 percent for the transport sector. The flexibility provided to clients and reduced processing requirements appear to be the driving force behind the high interest o f AF users.

11. Despite a relatively modest average size of projects, AF has supported large-scale operations. Evolving from the concept o f addressing cost overruns and filling financing gaps, AF was expected to provide speedy solutions for relatively smaller lending amounts. W h i l e this overall picture holds true, AF has been increasingly used to finance operations o f variable sizes. About 65 percent o f AF operations were for less than $25 million, and 87 percent were for less than $50 million. Nevertheless, the largest operation supported through this instrument during the review

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period was for $300 mi l l ion designed to scale up a successful highways project in Azerbaijan. As i s the case in the Bank’s overall portfolio o f investment operations, IBRD’s AF projects tend to be larger than IDA’S. Eleven AF loans for $100 mil l ion or more have also been approved. Four added financing to emergency operations, mostly for the purpose o f scaling up successful ongoing activities (e.g., Pakistan earthquake response). The other seven also had special features, such as large cost overruns or financing gaps that could not have been anticipated at appraisal o f the original projects (the Argentina Buenos Aires Urban Transport and Colombia Integrated Mass Transit System projects), or unusual opportunities for rapid scaling up o f large ongoing programs (the Indonesia Second Urban Poverty and Third Kecamatan Development projects). These 11 large loans accounted for $1.6 billion, or 35 percent o f the total AF lending (see Annex B for more details).

12. AF experience has shown a reasonable relationship with its size relative to the originaVparent operation but design decisions have been kept flexible. Most AF operations have been for amounts up to hal f o f the originavparent loan commitment but with a broad range both above and below this level.6 As can be seen in Figure 2, the majority (64 percent) o f al l the approved AF loans have amounted to 50 percent or less o f the original loan commitment. Proportions varied

in a Bhutan Education Development Project to 214 from 5 percent to cover a small cost overrun percent for a substantial scaling up o f the Transparency and Governance technical assistance project in the Democratic Republic o f Congo. I t i s important to note that the relative size o f AF operations i s not restricted by policy and there is no evidence to suggest that it should be limited in the future. Concerns about the risk o f AF use outside the guidelines for the instrument to take advantage o f the streamlined processing requirements have not materialized, largely due to OPCS and regional oversight.

Figure 2. AF as Percentage of Original Loan or Credit, FYOS-OS

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<50% 51 -1 00% >loo% Original loan percentage

Source: Business Warehouse.

13. Over the FY05-08 period, more than two-thirds o f AF operations have been for scaling up successful project/program activities as indicated in Table 3. About one fourth has been designed to deal with cost overruns/financing shortfalls. The remainder (6 percent) has supported the restructuring o f operations. Fitting into the cost overrun category has been attractive, as this has implied simpler processing (for example n o need for appraisal) and documentation than for the two other categories. However, reality o n the ground i s more complex and teams have reported that more than one o f the criteria could apply and have asked for greater f lexibi l i ty in categorizing the justification for ut i l iz ing AF. M o v i n g forward, i t will be clarified in the guidelines that the Bank’s requirement for a l l three categories will be the same and teams should have the flexibility o f having more than one option for AF.

Scaling up successful operations has been the main use of AF.

For the seven cases o f where one operation received more than one AF, we have compared the cumulative total o f the AFs to the respective size o f the original loan.

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Table 3. Distribution o f AF by Purpose, FY05-08 Operations Amount Averages

Commit amt Prep time Prep cost Purpose No. % total $ m % total (US$M) (months) (US$OOO)

Cost overrun 37 26 1,104 24 30 4.1 27 Restructuring 9 6 195 4 22 2.8 48 Total 144 100 4,637 100 32 4.1 51 Source: Business Warehouse and OPCS data o f concept memorandum approval dates for AF operations.

Scale up 98 68 3,338 72 34 4.2 59

Box 1. Examples o f AF Projects for Scaling-up

Indonesia: Third Kecamatan Development Project, Second Phase. The $160 mi l l ion AF supports scaling up o f a successful $123 mi l l ion community-driven development (CDD) program o f block grants to enhance income generation, decision making, and access to better services in poor rural communities. Ongoing assistance to some 13,150 subdistricts i s expanded to another 450 poor subdistricts, activities are scaled up within al l participating subdistricts, and the full program i s continued for another year. Along w i th AF ($100 million) for the Second Urban Poverty Project ($135 million), this project provides a bridge to a nationwide C D D program for which the Government has requested a series o f new Bank loans beginning in 2008.

Ethiopia: Protection of Basic Services. The $215 mi l l ion AF covers a financing gap and supports scaling up the impact o f the $215 mi l l ion Protection o f Basic Services project through the implementation o f new and complementary basic service activities. The AF supports (a) delivery o f basic services in education, agriculture, health, and waterisanitation; (b) capital investment for local governments; (c) high-impact health commodities and health system strengthening; and (d) various capacity-building activities.

B. Simplification and processing of AF

AF was designed to be prepared at lower cost and with less preparation time but savings in both have been striking. I t takes dramatically less t ime and money to get AF operations from concept document to Board approval relative to other investment lending instruments. On average, AF operations were processed in about one-quarter o f the t ime (4.1 months), and for about 15 percent ($5 1,000) o f the average preparation cost o f traditional operations as noted in Table 4. Preparation costs o f the 11 largest AF loans (>$loom) averaged $67,000. Simple and repeater projects, which are subject to some streamlining, also show lower costs (an average $223 thousand per project vs. $346 thousand over FY05-08) but not nearly to the extent o f much lower costs o f AF. The range o f preparation costs was from an average o f 20 thousand when AF was first introduced in FY05 to about 50 thousand in FY08. Savings in terms o f cost and time were clearly driven by fewer mandated procedures and reviews, simpler documentation requirements and the use o f assessments and preparatory work done for the orginial operation. The targeting o f AF to projects already identified as performing satisfactorily, and as such perceived as being l o w risk, contributed to staff and management comfort with the accelerated preparation approach. Preparation times have crept up over the review period and Bank management wil l need to be watchful to avoid the accretion o f unnecessary or l o w value reviews - a common problem with innovations as they become broadly adopted in the Bank’s bureaucratic environment.

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Table 4. Average Preparation Cost and Time, FY05-08 Average preparation cost Average preparation time

Fiscal No. of A F (us$ooo) (months) year operations A F All IL A F All IL

2005 5 20 3 74 1.7 15.4 2006 16 44 359 3.4 14.7 2007 62 53 326 4.2 14.5 2008 61 50 328 4.4 15.2 Total 144 51 346 4.1 14.9 Source: Business Warehouse and OPCS data o f concept memorandum approval dates for AF operations.

14. The goal of getting resources to beneficiaries more quickly is being offset to some extent by delays in getting AF operations effective and attention needs to be directed to client procedures as part of this innovation. AF has succeeded in reducing the preparation time from 14.9 months to the l o w level o f 4.1 months but was only able to reduce the period between project approval and effectiveness by about one month (from 6.1 months to 5.0) when compared with normal investment lending. The slight reduction in t ime may be explained by the benefits o f the institutional set-up o f the original operation. But future efforts should also be directed to working with country counterparts to explore options to expedite effectiveness and ensure that funds get to beneficiaries at a faster rate. A primary source o f this delay is related to approval processes within countries.

15. OPCS review of AF proposals-it has been effective and there has been good collaboration with Regions. When AF was introduced, and to ensure consistent application o f the new pol icy and procedures across sectors and Regions, i t was decided that Operations Policy and Country Services (OPCS) would review Concept Memoranda for a l l AF proposals. OPCS set an internal goal o f 48 hours to respond to regional requests. To date, OPCS has reviewed al l proposals and cleared those judged as meeting the criteria. Regions and staff are generally satisfied with the response o f OPCS, which has complied with this self-imposed deadline for action (a tracking system measuring the elapsed time is in place). Almost a l l proposals f rom the Regions have been consistent with pol icy requirements. However, where appropriate, some proposals were redirected and teams guided to use more appropriate lending instruments such as repeaters, or to develop new freestanding operations. In other cases, i t was simply to help the team be clear about what needed to be done and next steps. With OPCS assistance, the Regions have put in place mechanisms to ensure a level o f review that is commensurate with the r isks identified. For example, whi le AF was applied for l o w r isk operations in general, there were a few cases where special circumstances increased the risk (e.g. country conditions), and where Regions responded by applying appropriate review mechanisms (ROCs for example) for operations o f higher risk. AF Guidelines have n o w been refined and are clear. The learning process, based o n OPCS feedback and discussions with the Regions, has resulted in the consistent and satisfactory application o f criteria by the Regions, largely making OPCS involvement with decisions o n approval unnecessary.

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C. Implementation of additional financing operations

16. The implementation track record of AF operations has been satisfactoiy. Overall, AF has performed wel l during implementation as compared to other investment lending operations. This i s due in part to the selection factor: additional financing i s applied to low-risk operations. Nevertheless, experience demonstrates that the use o f streamlined processes had n o discernable negative impact on quality and that operations continued to have satisfactory performance over time. An OPCS review o f 59 Implementation Status Reports (ISR) for AF loans approved through F Y 0 7 reveals that 95 percent o f the operations were rated Satisfactory or better for progress on Development Objective (DO), and 88 percent were rated Satisfactory or better for Implementation Progress (IP). The remaining operations were rated Moderately Satisfactory; there were n o Moderately Unsatisfactory or Unsatisfactory ratings. Only one operation had an Unsatisfactory sub-rating (Madagascar Community Development project-for counterpart funds), and two operations had Moderately Unsatisfactory sub-ratings for monitoring and evaluation (Pakistan A J K Community Infrastructure and Services and Tanzania Local Government Support projects).

17. QAG Assessments have con3rmed this positive assessment of implementation. QAG also looked at these issues during a recent Quality at Entry Assessment for FY06-07 (QEA8) and reported a good outcome for operations supported by AF. The analysis was possible as QAG was asked by OPCS to expand the sample o f AF operations to al low for a focused examination o f these operations. The analysis showed that the 16 .AF operations in the sample performed much better than other operations (1 00 percent were Marginal ly Satisfactory or better). The assessment showed that AF i s conceptually sound, provided that supervision o f the original project confirms that a l l necessary requirements expected o f a new project have been fulfilled under the original project.

1 8. AF has provided opportunities to strengthen implementation arrangements. AF, like other reforms, can provide opportunities to build on earlier work and assessments of various systems and even strengthen those systems. This has been the case with AF.

AF loans build on procurement and financial management arrangements that have proven to be successful and that are assessed and reconfirmed by fiduciary specialists. In fact, for most AF operations (except those involv ing a pure cost overrun), staff have introduced the 2004 Procurement and Consultant Guidelines and sanctions reform into the new loans and, often, into the ongoing project for the undisbursed balance o f the project.’ AF can also offer an opportunity to strengthen financial management systems. For example, in the preparation o f the AF for the Governance and Institutional Development Project in Madagascar, a thorough assessment was

Most o f the original loans for which AF was approved during the review period were approved before the current Procurement and Consultant Guidelines were issued in 2004 and revised in 2006. Earlier procurement guidelines applied to most contracts signed under those loans. The current guidelines normally apply to contracts under AF and should be referenced in a l l project papers and legal documents. U s e o f the guidelines in effect for the original loan has been allowed, in consultation with the Regional Procurement Manager, only to continue financing ongoing contracts, or the continuation o f ongoing contracts, tendered under the original loan before approval o f the Concept Memorandum for AF loan. This issue wil l gradually disappear.

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undertaken to support the proposed arrangements in accordance with the Financial Management Procedures Manual.

Some task teams have used the preparation o f an AF operation as an opportunity to review and improve the results framework and the monitoring and evaluation arrangements o f the original project. In these cases, key monitoring indicators, including baseline data and targets, have been updated and reflected in the results framework. The Project Paper for AF to Indonesia’s Third Kecamatan Development Project-which continues and expands a high-priority program and i s one o f the pillars o f the Government strategy as well as o f the Bank’s poverty alleviation strategy for the country-contains an updated results framework and gives an excellent and realistic description o f objectives and expected outcomes.

19. In consultations, users o f AF expressed satisfaction with their experience. AF has become an increasingly popular tool among operational staff. Speed, simplicity and f lexibi l i ty are often noted as the reasons for choosing AF. For example, the instrument provides both clients and staff an incentive to make changes (including restructuring) that otherwise might not be pursued, and i t also offers a chance to revisit implementation arrangements and results frameworks to make mid stream corrections and adjustments. The Bank’s clients have also expressed appreciation the f lexibi l i ty and timeliness o f AF and the applicability o f the approach more broadly for sustained and programmatic engagements with the Bank (see B o x 2).

Users are uniformly satisfied with AF.

Box 2. Consultations with Clients on Additional Financing

Consultations w i th three Bank clients that have frequently used AF revealed the following:

They are comfortable using AF, which allows more funds to be invested into operations that are already working well, w i th well-functioning implementation arrangements and known risks that have been or are being mitigated. One client added that in several cases the addition o f new resources had actually been an opportunity to improve the original operation.

They were satisfied with the speed o f the preparation o f AF operations on the Bank’s side and expressed appreciation for the sector-specific knowledge and expertise that come wi th Bank preparatory activities.

Experience regarding increased efficiency on the government side was mixed, Two clients said that AF has proved to be faster and less expensive on the government side, but one said that internal processing was only slightly less cumbersome compared to regular investment lending. In particular, parliamentary ratification o f the AF has been a bottleneck: for one client, the fact that the new project i s known and already has a proven satisfactory implementation record means a faster and less complicated ratification; another said that the ratification process was so slow that i t somewhat offset the gain o f faster preparation.

The clients felt i t would be good to use some o f the savings and good experiences with AF in the preparation o f new investment lending operations. In particular, they said, in sectors where the Bank funds successive projects building on the same methodology and implementation arrangements (e.g., highway 1, 2, 3), there i s no reason to start from scratch every time.

IV. LESSONS LEARNED

20. By almost any measure, AF has been a successful innovation that has met or exceeded init ial expectations. I t has addressed an important shortcoming o f the previous pol icy on supplemental financing by recognizing the need to meet financial shortfalls as we l l as cost

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overruns. But i t s main benefit has been i t s usefulness in rapidly responding to clients’ needs without compromising quality. I t has demonstrated the importance o f f lexibi l i ty and the opportunity for the Bank to think about where bureaucratic processes can be shortened or eliminated. Staff and management have responded to this new approach, evidenced by the rapid adoption o f AF in comparison with other less bold and less effective innovations for investment lending. The results on lowering preparation costs and time required for delivery speak for themselves. The corporate oversight role o f OPCS and the Regions has been effective through this init ial rol lout and learning cycle. And lastly, clients have appreciated the effectiveness of AF for helping them meet their financing needs and development goals in a more flexible way.

21. similar approaches in the future.

This progress report indicates a number o f findings to be taken into account for AF and

There may be scope to widen the use of AF in IBRD countries. While this report shows a strong use o f AF in IDA countries, the LCR experience suggests considerable interest in IBRD clients. Regions which have more IBRD potential should look into what has impeded take-up and explore h o w more extensive use of the AF instrument can be facilitated.

Flexibility should beparamount. Experience to date has shown that there i s no need to limit the broad range o f purposes AF can support (cost overrun or financing gap, restructuring, and scale-up), i t s relative size in relation to the original project or i t s overall size. The justification criteria should al low for the use o f more than one category o f circumstances for determining the appropriate applicability o f AF. Lastly, it i s recommended to keep the three year extension o f project closing for AF use as a good practice guideline.

OPCS review and approval of AF should be delegated to the Regions. I t i s recommended that ex ante reviews shift f rom OPCS to the Regions, building on the successful experience accumulated to date and in l ine with regional responsibilities for quality o f operations.

Avoid process and procedure creep. Management should be alert for a natural tendency to have new rules and reviews reasserted for AF. OPCS should discuss with the Regions their existing processes and ensure that AF preparation and approval remain simple and consistent across Regions.

22. transformation o f the Bank’s approach to investment lending. They include:

The design and implementation o f AF suggests some important considerations for

Fast-tracking the processing of low risk operations is feasible. The success o f AF i s based o n an abi l i ty to identify l o w risk operations combined with a simplified process. The experience to date demonstrates the feasibility o f adjusting the processing o f IL operations based on risks and for exploring the use o f AF processes for other l o w risk operations.

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Streamlining can be consistent with good quality. The review o f AF provides ample evidence that streamlining processes does not have to come at the expense o f quality. I t i s therefore possible to tailor our processes to the requirements o f the specific operations and achieve the desired levels o f quality assurance.

0 AF success is highly correlated with its ability to make a difference for front-line staff and for clients. Many reforms are too focused o n internal processing without examining what the real impact i s in the way the Bank does business. This should be an important criterion for transforming investment lending.

Reforms need to link to the demands of clients and the external environment. AF was introduced at a time when many countries, partners and staff were exploring options to scale up successful activities and programs. This link to the changing demand o f the business contributed to its success as demonstrated by the significant use o f AF for scaling-up o f activities.

V. ADJUSTMENTS RECOMMENDED

23. benefits o f the AF instrument. They are:

The review o f AF suggests a number o f adjustments that can enhance and expand the

Appropriateness of A F for Adaptable Program Loans. Adaptable program loans (APLs) have not normally qualified for AF since their design assumes that new, revised, and scaled-up activities will be financed under fol low-on phases. In some cases, however, successful APLs have qualified for AF to: (a) address a cost overrun or financing gap encountered during implementation o f a phase; (b) scale up the APL’s f inal phase; (c) complement formal restructuring o f the overall APL with Board approval, and (d) scale up project activities that are performing better than expected at appraisal and that cannot be postponed to the subsequent APL phase. AF has also been judged appropriate in the context o f multicountry (horizontal) APLs under which only one loan i s anticipated for a given country. Regional quality teams have been consulted in a l l such cases.

Expansion of AF to Trust Funds. At present, OP/BP 13.20, Additional Financing, applies only to IBRD loans and IDA credits and grants, and not to operations financed f rom trust funds or IDA surplus. However, there has been a small and growing number o f requests for AF to build o n successful projects financed by trust funds. In response, i t i s proposed that OP/BP 13.20 be aligned with OP/BP 14.40, Trust Funds, to apply also to trust fund grants that: (a) are approved by the Board; and (b) are additional to ongoing loans-that is, cover a cost overrun or financing gap, or scale up or restructure a Board-approved loan.

Refinements to AF OPBP 13.20. Whi le investment lending reform i s expected to provide the overall pol icy umbrella for investment lending, in the interim, the team proposes the fol lowing small modifications to the OP/BP 13.20:

12

o In alignment with OP/BP 14.40, Trust Funds, the AF pol icy would apply to trust fund grants that are approved by the Board and are additional to loans (OP 13.20, footnote 1).

o Whi le the three categories o f AF would be kept (cost overrun or financing gap, restructuring, scale-up), the revised pol icy would clari fy that a combination o f categories is also acceptable (OP 13.20, paragraph 1).

o Appraisal would be required for a l l categories and combination o f categories (OP 13.20, paragraph 2 (ii)).

VI. CONCLUSION

24. Experience to date indicates that AF has been a success and has made a difference on the ground. I t i s popular among staff and clients. The expected benefits o f the AF reform have materialized, and in fact, have gone beyond what was envisaged at i t s inception. The rationale behind AF-using “lighter” processing to invest in projects that are as nearly risk-free as they can be in areas where the Bank has already been working and whose current performance i s satisfactory-confirms that a simpler, risk-based approach to delivering Bank operations can work. The reform has also:

(a) strengthened the Bank’s abi l i ty to scale up the results and development impact o f successful projects more quickly and with much lower processing and transaction costs;

(b) enhanced the Bank’s abi l i ty to restructure well-performing projects that encounter changed circumstances during implementation;

(c) ensured consistent application o f AF across sectors and Regions, using uni form and transparent criteria, clear guidance to staff, and uni form internal reviews and documentation requirements; and

(d) added f lexibi l i ty to al low a more programmatic engagement with clients and to harmonize Bank support for well-performing investment projects with that of other development partners during implementation.

25. Looking ahead. AF operations build on ongoing experience and are only permitted when the current experience i s satisfactory. They use existing arrangements both for implementation and fiduciary oversight. The experience with AF offers important lessons for the way forward in investment lending reform. Nevertheless, the key lesson i s this: low-risk operations can be undertaken with much lower cost, much greater speed, and much reduced documentation and review, yielding no loss o f quality or creating dissatisfaction among clients, staff, management or Executive Directors. Therefore, this suggests that this model could be used for a variety o f low- risk investment operations, with a significant reduction in processing costs and time. This

13

observation is taken up further in the “Investment Lending Reform: Concept Note”* that i s being presented to the Executive Directors at the same time as this paper.

26. Based on this review, i t i s proposed that the provisions o f OP 13.20 should continue to apply taking into account the recommendations presented in para 24 above. Further, while AF has provided valuable lessons for IL reform, it may be influenced by the changes to be put forward as part o f this reform.

“Investment Lending Reform: Concept Note”: OPCS, February 10, 2009, especially paragraphs 23-4. Examples o f low risk operations that could be processed this way would include simple repeater operations, 2”d and 3rd stage APLs, and new operations in low-risk settings that build on past experience and implementation arrangements.

15

ANNEX A. INVESTMENT OPERATIONS SUMMARY TABLES, FYOS-OS Table Al . All Investment Operations

Total Average Average Average Average IBRD I D A IBRD/IDA IBRDMDA preparation preparation effectiveness

IBRD I D A IBRD/!DA commit arnt commit amt commit arnt commit amt cost time delay Fiscal year no. n 0. n 0. (US$M) (US~M) (US$M) (US~M) (US$T) (mos) (mas)" 2005 93 131 224 $9.070 $6.228 $15.298 $68 $374 15.4 6.4 2006 92 143 235 $9,229 $7,022 $16,251 $69 $359 14 7 6.7 2007 89 152 24 1 $9,149 $9,107 $18,256 $76 $326 14.5 5.8 2008 83 169 252 $9.501 $8.553 $18.054 $72 $328 15.2 4 1 Total 357 595 952 $36,949 $30,909 $67,859 $71 $346 14.9 6.1 Source: Business Warehouse. A total o f 44 operations don’t have preparation cost data (FY05=9; FY06=11; FY07=9; FY08=15). I’ Include projects that became effective before FY09.

Table A2. Investment Operations (excluding AF & ERL) Total Average Average Average Average

IBRD I D A IBRDLDA IBRDLDA preparation preparation effectiveness I B R D I D A I B R D l D A commit amt commit amt commit amt commit amt cost time delay

Fiscal year no. n 0. no. (US$M) (us$M,, (US$M) (US$M) (US$T) (mos) (mas)" 2005 91 113 204 $8,845 $5,301 $14,147 $69 $383 16 2 6 7 2006 90 122 212 $8,992 $5,597 $14,590 $69 $381 16 4 7 0 2007 76 107 183 $8,334 $7,475 $15,809 $86 $415 18 3 6 0

Total 327 460 787 $34,915 $24,934 $59,849 $76 $395 17.4 6.4 Source Business Warehouse A total o f 10 operations don’t have preparation cost data (FY05=6, FY06=2, FY07=1, FY08=1) Note There are 12 supplemental operations prior to the introduction o f AF that are not counted, and 1 supplemental operation that got an exception after AF was introduced Their commitment amount & preparation cost are included with their originaliparent operations I Include projects that became effective before FY09

2008 70 118 188 $8,743 $6,560 $15,303 $8 1 $406 19 0 4 4

Table A3. Additional Financing Operations Only Total Average Average Average Average

IBRD I D A IBRDLDA IBRDLDA preparation preparation effectiveness IBRD I D A IBRD/IDA commit amt commit amt commit arnt commit amt cost time delay

Fiscal year no. n 0. n 0. (US$M) (US~M) (US$M) (US$M) (US$T) (mas)" (mos) ’’ 2005 5 5 $54 $54 $1 1 $20 1.7 4 9 2006 3 13 16 $203 $570 $772 $48 $44 3.4 3.5 2007 15 47 62 $778 $1,082 $1,859 $30 $53 4.2 5.6 2008 13 48 61 $655 $1,297 $1,951 $32 $50 4.4 4.3 Total 31 113 144 $1,635 $3,002 $4,637 $32 $51 4.1 5.0 Source Business Warehouse A total o f 33 operations don’t have preparation cost data (FY05=3, FY06=9, FY07=8, FY08=13) There are 2 AF that are excluded as they were processed as GFRP I/ As there is n o P C N review meeting for additional financing, the date o f OPCS approval o f concept memorandum was used 26 operations were manually adjusted as they had incorrect dates ’’ Include projects that became effective before FY09

Table A4. E I U Operations Only Total Average Average Average Average

IBRD I D A IBRD/IDA I B R D l D A preparation preparation effectiveness IBRD I D A IBRD/IDA commit arnt commit amt commit arnt commit amt cost time delay

Fiscal year no. n 0. no. (US$M) (us$M,, (US$M) (US$M) (US$T) (mos) (mas)" 2005 2 13 15 $225 $873 $1,098 $73 $265 8.3 3.3 2006 1 17 18 $34 $1,009 $1,044 $58 $188 4.3 5.2 2007 1 15 16 $38 $569 $606 $38 $209 10.1 5.4 2008 3 21 24 $103 $744 $847 $35 $225 10.1 2.4 Total 7 66 73 $400 $3,195 $3,595 $49 $221 8.4 4.4 Source Business Warehouse There i s 1 ERL excluded as i t was processed as GFRP I/ Include projects that became effective before FY09

16 ANNEX A

Table A5. Approved I B F W I D A Investment Operations, FYO5-OS by IBFUVIDA

Total Average Average Average Average IBRD I D A IBRDLDA IBRDLDA preparation effectiveness preparation

No. of commit amt Commit amt commit amt commit amt time delay cost

I D A 595 $30,909 $30,909 $52 13.9 5.5 $333

Agreement type project (US$M) (US$M) (US$M) (US$M) (mas) (mas)" (US$T) IBRD 357 $36,949 $36,949 $103 16 8 7.1 $367

Overall result 952 $36,949 $30,909 $67,859 $71 14.9 6.1 $346 Source Business Warehouse I’ Include projects that became effective before F Y 0 9 Note There are 12 supplemental operations prior to the introduction o f AF that are not counted, and 1 supplemental operation that got an exception after AF was introduced Their commitment amount & preparation cost are included with their original/parent operations

Table A6. Approved IBRD/IDA Investment Operations,FYOS-OS by Region

Total Average Average Average Average I B R D I D A IBRDLDA IBRD/IDA preparation effectiveness preparation

No. of commit amt commit amt commit amt commit amt time delay cost Region project (US$M) (US$M) (US$M) (US$M) (mas) (mas)" (USST)

AFR 265 $25 $14,657 $14,682 $55 15.2 5 7 $377 EAP 138 $7,357 $4,414 $1 1,772 $85 20.0 6.8 $426 E C A 198 $11,105 $1,519 $12,624 $64 13.1 6 2 $316 L C R 189 $10,840 $799 $11,639 $62 13.2 7 8 $284

SAR 115 $5,347 $8,650 $13,997 $122 13.8 3 5 $311 Overall result 952 $36,949 $30,909 $67,859 $71 14.9 6.1 $346

MNA 47 $2,275 $871 $3,146 $67 16.9 7 1 $394

Source: Business Warehouse. ’ Include projects that became effective before FY09. Note: There are 12 supplemental operations pr ior to the introduction o f AF that are not counted, and 1 supplemental operation that got an exception after AF was introduced. Their commitment amount & preparation cost are included with their originaliparent operations.

Table A7. Approved IBRD/IDA Investment Operations, FY05-08 by Instrument

Total Average Average Average Average I B R D I D A IBRDDDA IBRDLDA preparation effectiveness preparation

No. of commit amt commit amt commit amt commit amt time delay cost Lending instrument project (US$M) (US$M) (US$M) (US$M) (mas) (mas)" (US$T) APL 128 $5,577 $3,984 $9,561 $75 15.8 6 7 $355 ERL 73 $400 $3,195 $3,595 $49 8.4 4 4 $221 FIL 14 $1,184 $356 $1,539 $110 17.0 6 8 $291 LIL 1 $0 $25 $25 $25 4.0 6.6 $13 SIL 642 $28,305 $21,368 $49,674 $77 15.6 6.1 $363 SIM 28 $1,206 $1,401 $2,608 $93 17.6 7.3 $419 TAL 66 $277 $581 $857 $13 12.5 5 9 $272 Overall result 952 $36,949 $30,909 $67,859 $71 14.9 6.1 $346 Source Business Warehouse ” Include projects that became effective before F Y 0 9 Note There are 12 supplemental operations pr ior to the introduction o f AF that are not counted, and 1 supplemental operation that got an exception after AF was introduced Their commitment amount & preparation cost are included with their originaVparent operations

17 ANNEX A

Table A8. Approved IBRD/IDA Investment Operations, FY05-08 by Major Sector

Total Average I D A IBRDLDA IBRDLDA

IBRD commit commit amt commit arnt commit amt Major sector No. ofproject arnt (US$M) (US$M) (US$M) (US$M)

Agriculture 93 $3,055 $2,550 $5,605 $61 Education 87 $2,758 $3,364 $6,123 $70 Energy & Mining 92 $5,182 $3,458 $8,640 $94 Finance 33 $1,682 $1,028 $2,711 $83 Health & social service 115 $2,53 1 $4,2 15 $6,745 $59 Industry & trade 37 $1,178 $1,586 $2,764 $76 Info & communication 8 $60 $240 $299 $39 Public administration, L a w 255 $5,070 $6,002 $1 1,073 $43 Transportation 122 $10,086 $5,204 $15,290 $125 Waterlsanitatiodflood protection 112 $5,346 $3,262 $8,608 $77 Overall Result 952 $36,949 $30,909 $67,859 $71 Source Business Warehouse ” Include projects that became effective before FY09

18 ANNEX A

Table A9. Approved IBRD/IDA Investment Operations (excluding ERL and AF), FY05-08

Total Average Average Average Average IBRD I D A IBRD/IDA IBRDBDA preparation effectiveness preparation

No. of commit amt commit amt commit arnt commit amt time delay cost Agreement Type project (US$M) (US$M) (US$M) (US$M) @os) (mos)” (US$T) IBRD 327 $34,9 15 $34,9 15 $107 18.1 7.2 $397 I D A 460 $24,934 $24,934 $54 16.9 5.9 $394 Overall Result 787 $34,915 $24,934 $59,849 $76 17.4 6.4 $395 Source Business Warehouse ’/ Include projects that became effective before FY09 Note There are 12 supplemental operations prior to the introduction o f AF that are not counted, and 1 supplemental operation that got an exception after AF was introduced Their commitment amount & preparation cost are included with their originaliparent operations

Table A10. Approved I B F W I D A Investment Operations (excluding ERL and AF), FY05-08

Total Average Average Average Average IBRD I D A IBRD/IDA I B R D I D A preparation effectiveness preparation

No. of commit arnt commit amt commit amt commit amt time delay cost Region project (US$M) (US$M) (US$M) (US$M) (mod (mas)" (US$T)

AFR 210 $25 $12,325 $12,350 $59 18.0 6.1 $437 EAP 125 $7,344 $4,007 $11,352 $91 21.5 7.1 $455 ECA 171 $10,533 $1,362 $11,895 $70 14.9 6 3 $357 L C R 165 $9,853 $729 $10,583 $64 14.7 8 1 $317 MNA 36 $2,009 $255 $2,264 $63 20.6 6 1 $466 s AR 80 $5,150 $6,255 $1 1,405 $143 19.1 3 7 $403

Source Business Warehouse

Note There are 12 supplemental operations pr ior to the introduction o f AF that are not counted, and 1 supplemental operation that got an exception after AF was introduced. Their commitment amount & preparation cost are included with thelr origmaVparent operations

Overall Result 787 $34,9 15 $24,934 $59,849 $76 17.4 6.4 $395

Include projects that became effective before FY09

Table A l l . Approved IBRD/IDA Investment Operations (excluding ERL and AF), FYO5-OS by Instrument

Total Average Average Average Average IBRD I D A IBRDLDA IBRD/IDA preparation effectiveness preparation

Lending No. of commit arnt commit amt commit amt commit amt time delay cost Instrument project (US$M) (US$M) (US$M) (US$M) (mas) (mos)” (USST)

APL 123 $5,577 $3,703 $9,280 $75 16.6 6.8 $370 FIL 13 $1,184 $341 $1,524 $117 17.7 7.2 $314 S I L 567 $26,697 $19,140 $45,836 $8 1 17.8 6.3 $410 S I M 24 $1,206 $1,196 $2,402 $100 19.8 7.6 $482 T A L 60 $25 1 $555 $806 $13 13.7 5.9 $291

Source Business Warehouse ’/ Include projects that became effective before FY09 Note There are 12 supplemental operations prior to the introduction o f AF that are not counted, and 1 supplemental operation that got an exception after AF was introduced Their commitment amount & preparation cost are included with their origmaliparent operations

Overall Result 787 $34,915 $24,934 $59,849 $76 17.4 6.4 $395

19 ANNEX A

Source: Business Warehouse ” Inc lude projects that became effect ive before FY09.

20 ANNEX A

Table A13. Approved IBRDlIDA Additional Financing Operations, FY05-08 by IBRD/IDA

Total Average Average Average Average IBRD I D A IBRDDDA IBRD/IDA preparation effectiveness preparation

Agreement No. of commit amt commit amt commit arnt commit amt time delay cost

IBRD 31 $1,635 $1,635 $53 5 5 6.4 $43 IDA 113 $3,002 $3,002 $27 3.7 4.6 $54 Overall Result 144 $1,635 $3,002 $4,637 $32 4.1 5.0 $51 Source Business Warehouse ” As there i s no PCN review meeting for additional financing, the date o f OPCS approval o f concept memorandum was used 26 operations were manually adjusted as they had incorrect dates

Note There are 2 AF excluded as they were processed as GFRP

Type project (US$M) (US$M) (US$M) (US$M) (m os) ’/ (mos)” (US$T)

Include projects that became effective before FY09 1 loan was cancelled after Board Approval

Table A14. Approved IBRD/IDA Additional Financing Operations, FY05-08

Total Average Average Average Average IBRD I D A IBRD/IDA IBRDLDA preparation effectiveness preparation

No. of commit amt commit arnt commit amt commit amt time delay cost

AFR 51 $1,386 $1,386 $27 3.9 4.5 $65 EAP 8 $369 $369 $46 4.1 4.6 $80 ECA 22 $500 $107 $607 $28 3.8 6.3 $47 LCR 23 $892 $23 $914 $40 5.9 6.4 $38 MNA 8 $46 $101 $147 $18 4 2 7 6 $48 SAR 32 $197 $1,017 $1,214 $38 3.4 3 6 $35 Overall Result 144 $1,635 $3,002 $4,631 $3 2 4.1 5.0 $51

Region project (US$M) (US$M) (US$M) (US$M) (mas)" (mas)" (USST)

Source Business Warehouse ’ As there i s no PCN review meeting for additional finanicng, the date of OPCS approval o f concept memorandum was used 26 o erations were manually adjusted as they had incorrect dates 24nclude projects that became effective before FY09 1 loan was cancelled after Board Approval Note There are 2 AF excluded as they were processed as GFRP

Table A15. Approved IBRD/IDA Additional Financing Operations, FY05-08 by Instrument

Total Average Average Average Average IBRD I D A IBRD/IDA IBRDLDA preparation effectiveness preparation

No. of commit amt commit amt commit amt commit amt time delay cost Lending instrument project (US$M) (US$M) (US$M) (US$M) (mas)" (mos)” (US$T) APL 8 $28 1 $28 1 $35 3 1 4.6 $49 ERL 9 $222 $222 $25 4.2 5.0 $44 F IL 1 $15 $15 $15 7.5 2 1 $2 LIL 1 $25 $25 $25 4.0 6.6 $13 SIL 113 $1,609 $2,229 $3,837 $34 4.2 5.0 $53 SIM 4 $206 $206 $5 1 4.3 4 3 $40 T A L 8 $26 $25 $5 1 $6 3.7 5.9 $49 Overall Result 144 $1,635 $3,002 $4,637 $3 2 4.1 5.0 $51 Source Business Warehouse ’ As there i s no PCN review meeting for additional finanicng, the date o f OPCS approval of concept memorandum was used 26 operations were manually adjusted as they had incorrect dates 2’ Include projects that became effective before FY09 1 loan was cancelled after Board Approval Note There are 2 AF excluded as they were processed as GFRP

21 ANNEX A

Table A16. Approved IBRD/IDA Additional Financing Operations, FY05-08 by Major Sector

Total Average I B R D I D A IBRLVIDA IBRDIIDA

commit amt commit amt commit amt commit amt Major Sector No. ofproject (US$M) (US$M) (US$M) (US$M)

Agriculture 12 $148 $289 $438 $37 Education 7 $6 $340 $346 $47 Energy & Mining 5 $42 $125 $166 $3 1 Finance 4 $5 1 $79 $131 $34 Health & social service 17 $136 $581 $717 $42 Industry & trade 3 $10 $266 $276 $110 Public administration, L a w 22 $125 $426 $55 1 $25 Transportation 15 $1,023 $584 $1,607 $110 Waterlsanitatiodflood protection 13 $93 $312 $405 $3 1 Overall Result 98 $1,635 $3,002 $4,637 $47

Source: Business Warehouse. *’ Include projects that became effective before FY09. 1 loan was cancelled after Board Approval. NOTE. There are 2 AF excluded as they were processed as GFRP.

Table A17. Approved IBRD/IDA Additional Financing Operations, FY05-08 by Additional Financing Type

Total Average Average Average Average I B R D I D A I B R D I D A IBRD/IDA preparation effectiveness preparation

Additional No. of commit amt commit amt commit amt commit amt time delay cost financing type project (US$M) (US$M) (US$M) (US$M) (mos)” (mos)” (USST)

Cost overrun 37 $458 $646 $1,104 $30 4 1 5 2 $27 Restructuring 9 $195 $195 $22 2 8 2 9 $48

Overall Result 144 $1,635 $3,002 $4,637 $32 4.1 5.0 $51 Source Business Warehouse ’ As there i s no P C N review meeting for additional financing, the date o f OPCS approval o f concept memorandum was used. 26 operations were manually adjusted as they had incorrect dates. 2’ Include projects that became effective before FY09 1 loan was cancelled after Board Approval. N O T E There are 2 AF excluded as they were processed as GFRP.

Scale up 98 $1,176 $2,162 $3,338 $34 4 2 5 0 $59

22

ANNEX B. EXAMPLES O F AF LOANS FOR AMOUNTS OVER $100 MILLION AND EMERGENCY mSP0NSES

1. ADDITIONAL LOANS OVER $100 MILLION

Amount Percentage Prep time parent of original Prep costs PCD-

Project Name Country ($m) ($m) amount SAP months project A F total loan ($k) aPP.

Argentina: Buenos Aires Urban Transport Project (AF 2007) The AF for this operations has multiple purposes First, it f i l l s a financing gap to meet needs o f the 2002 “social emergency” Second, it covers engineering cost overruns that were not anticipated at appraisal. Third, i t supports the restructuring and scaling-up o f the ongoing project to finance consultant services, studies and Argentina capacity building activities for transport sector in urban areas outside Buenos Aires Due to delays caused by the 2002 crisis, the project was already 10 years o ld when the AF was approved The project i s expected to be 13 years o ld upon completion.

Azerbaijan: Highway 2 Project (AF 2008) The AF complements the financing o f the road Alat-Masali (only partially financed under the parent project and add the road Tagiyev- Sahil). I t also includes a contingency fund that amounts to US$48 million, to accommodate the increase o f cost due to high d a t i o n m Azerbaijan (about 15% a year) which is expected to continue for the next few years and the depreciation o f the US$ over the past years The project’s closing date was extended with a year and a ha l f until June 30, 20 12 to allow sufficient time to implement additional activities

Colombia: Social Safety Net Project (AF 2007) The AF provides for rapid scalmg up o f Bank support for Colombia’s successful social safety net program, enabling expansion o f a conditional cash transfer program supported under the onginal Bank loan so that it may include coverage o f new municipalities and households, The AF also supports the strengthening o f systems and capacities for monitonng and management o f the safety net program No extension was requlred and the project i s expected to be 3.1 years old upon completion.

Colombia: Integrated Mass Transit System (AF 2007) The AF supports the ongoing project to improve Columbia’s urban transit systems in two ways About hal f serves to cover cost overruns due to local inflation and exchange rate changes that were not anticipated when the original project was appraised The balance o f AF i s being used to scale up successful bus transit, feeder service, institutional strengthening and other activities financed under the original project. A 2 year extension was approved and the project is expected to be 6 3 years old upon completion

Azerbaijan

200 100.0 50 144 3.1

200 300 150 114 2.9

Colombia 86.4 104.8 121 1 3.7

Colombia 250 207.0 83 58 2.8

DRC: Emergency Multisector Rehabilitation & Recovery Project (AF 2006) The AF i s used to fill a financing gap in the original multi-donor program attributed to the lack o f available IDA funds or cofinancing at the time o f i ts approval and to scale up project activities that have been rated satisfactory under implementation. These activities include rehabilitation and reconstruction o f crit ical infrastructure, agricultural and social services, sector strategy and capacity development, and improved management and M&E. A 2.5 year extension was approved and the project is expected to be 6.3 years o ld upon completion.

DRC 454 125.0 28 NIA 5.7

23 ANNEX B

Project Name Ethiopia: Protection Basic Services (AF 2008) The AF provides support to cover a financing gap as well as to scale up project impact through the implementation of a new and complementary activity related to basic services. The AF largely finances (i) delivery o f basic services in education, agriculture, health, waterisanitation; (ii) capital investment at local government level; (iii) high impact health commodities and health system strengthening; and (iv) various capacity building activities. A 1 year extension of the project was approved and the project i s expected to be three years old upon completion.

Indonesia: Third Kecamatan Development Project, Second Phase (AF 2007) The AF supports scaling up o f a successful CDD program of block grants to provide the rural poor with opportunities for increased income generation, decision making and access to better services. Ongoing assistance to some 13,150 sub-districts i s expanded to another 450 poor subdistricts, activities are also scaled up within all participating subdistricts, and the full program i s continued for approximately one year. This provides a bridge to a nationwide CDD program for which Government has requested a series of new Bank loans beginning in 2008. N o extension was required and the project i s expected to be 3.75 years old upon completion.

.. .. . .. .. ..... ................ . . . .. .. ................................................... .. ............. ... . .. .

Amount Percentage Prep time parent of original Prep costs PCD-

Country ($m) ($m) amount SAP months project A F total loan (W aPP.

Ethiopia 215 215 100 54 5.8

Indonesia 160 123.0 77 147 5.6

Indonesia: Second Urban Poverty Project (AF 2007) The AF supports scaling up o f a successful CDD program to improve services for the urban poor and to strengthen community and government institutions for responsive service delivery, small- scale infrastructure development and disaster recovery (including post-tsunami housing reconstruction in Aceh). The Additional Financing provides funding to continue activities in about 6,000 wards already supported by the project and to scale up the program to include about 4,500 new urban wards. Along with AF for the Second Urban Poverty Project, this provides a bridge to a nationwide CDD program for which Government has requested a series of new Bank loans beginning in 2008. No extension was required and the project i s expected to be 6 years old upon completion.

Indonesia 100 135.5 136 23 5.2

Pakistan: Highway Rehabilitation Project (two operations) (AF 2006) The two AFs enabled the ongoing project to adapt and respond to the earthquake o f 2005 and other unforeseen developments while continuing successfully toward its objective o f building a sustainable national highway network. The first AF provided $100 million for reconstruction and rehabilitation o f four main highways that were damaged by the earthquake. The second AF covered a $65 million cost overrun due mainly to increased steel, oil and related transportation prices. No extension was required and the project i s expected to be 5.5 years old upon completion.

Pakistan 100 2oo (65)*

17 1.4 (O)* (1.8)* 83

24 ANNEX B

Amount Percentage Prep time parent of original Prep costs PCD-

Project Name Country ($m) ($m) amount SAP months project A F total loan (8k) aPP*

Pakistan: Second Poverty Alleviation Fund Project- Earthquake (three operations) (AF 2006/2007/2008) Parent PO82977 The three AFs enabled the ongoing project to adapt and respond to the earthquake o f 2005 and other unforeseen developments while continuing toward i t s development objective o f reducing poverty through provision o f resources and services to the poor, particularly women. The f i rs t AF enabled a restructuring and scaling up by $100 million o f the ongoing project to include reconstruction of housing destroyed by the earthquake. The second AF provided another $138 million to scale up further the housing reconstruction activities to meet needs that were significantly greater than expected at appraisal and approval o f the first AF. The third AF provided $75 million to scale up further. No extension was required and the project i s expected to be 4.6 years old upon completion.

238 Pakistan 100 138

(75)*

48 1.4 131 NIA 2.7

(18)* (6.7)*

~~ ~

Total 21 03 1,648 I022 74.6

Number of operations 10 11 11 11

Average 231 294 127 7.5

Median 125 54 3. I Not included in totals, only included even if less than $100 million to show multiple additional loans to the same operation.

25 ANNEX B

2. ADDITIONAL LOANS RESPONDING TO EMERGENCIES UNDER OP 8.50 AND OP 8.00

Amount Percentage Prep time parent of original Prep costs PCD-

Project Name Country ($m) ($m) amount SAP months project A F total loan ($4 aPP*

Afghanistan: Emergency National Solidarity Project' (two operations)(AF 2005/2006) The AF scales up a successful ongoing CDD program of block grants to finance community-managed reconstruction and development of village infrastructure and related capacity building activities including savings, Afghanistan 95 credit and asset transfer schemes for women and the disabled. No extension was required and the project i s expected to be 3.25 years old upon completion.

28 29 NIA 0.7 40 42 153 1.5

Afghanistan: Emergency Irrigation Rehabilitation" (AF 2007) The AF restructures and scales up activities of a successful ongoing project to restore irrigated agricultural production in rural areas through improved, reliable water supply to rehabilitated irrigation Afghanistan 40 25 63 NIA 2 6 schemes An extension of 1 year was required and the project i s expected to be 4.75 years old upon completion.

Afghanistan: Health Sector Emergency Rehabilitation Project" (AF 2006) The AF restructures and scales up a successful ongoing project by (1) expanding coverage of health services and related activities for reduction of child mortality and (ii) introducing new activities that wi l l Afghanistan set the stage for future improvements in health sector performance.. An extension o f 1 year was required and the project i s expected to be 4 75 years old upon completion.

30 50 NIA 7.1 20 34 26 4 9 59 6

Bolivia: Disaster Recovery & Vulnerability Reduction Project (AF 2008) The AF would expand the parent project to 1) geographcally scale up small rehabilitation, reconstruction, and mtigation works to cover five pnontlzed areas as m the ongmal project, and ii) rehabilitate the productive capacity to cover the communities affected by the recent floods associated with the LaNmia event of late 2007 - early 2008. As the parent project was not yet effective and could therefore not show a satisfactory mplementation record, an exception to OP 13.20 was obtamed Apnl 18, 2008 The project's closmg date was extended with a year and a half until June 30, 2012 to allow sufficient tune to mplement additional activities.

12.5 4.4 35 1 0.8

Djibouti: Flood Emergency Rehabilitation" (AF 2007) The AF covers engmeering cost overruns associated with flood control and road rehabilitation works financed under the successhl ongomg project,

Djibouti City &om future floods. An extension of 1 year was requred and the project i s expected to be 4 years old upon completion.

which Lncludes reconstruction of the Ambouli Dlke as requred to protect Djibouti 6.5 2 31 22 7 9

An emergency operation responding to post-conflict needs under a Transitional Support Strategy (TSS), as per OP 8.50 and 8.00. An emergency operation responding to post-conflict needs under a TSS, as per OP 8.50 and 8.00. An emergency operation responding to post-conflict needs under a TSS, as per OP 8.50 and 8.00. An emergency operation responding to floods in 2004, as per OP 8.50 and 8.00.

I O

II

12

26 ANNEX B

Amount Percentage Prep time parent of original Prep costs PCD-

Project Name Country ($m) ($m) amount SAP months project AF total loan (%k) aPP.

DRC: Emergency Multisector Rehabilitation & Recovery Projecti3 (AF 1 2006) (AF 2 2008) The AF f i l l s a financing gap o f the ongmal multi-donor program due to a shortfall in cofmancing and scales up relatively successful project activities mcluding the rehabilitation o f cntical infrastructure, delivery o f social services, and associated capacity development, monitonng and evaluation An extension o f 2 5 years was required and the project i s expected to be 6 5 years old upon completion A second AF was approved to fill a financing gap due to earlier IDA constraints The AF i s being entirely used to finance engineenng cost overruns amounting to about 15% o f the approved $81 mill ion electncity sector component No extension o f the closing date was needed for this AF.

Hait i : Emergency Recovery & Disaster Management Project (AF 2008) The AF to the Emergency Recovery and Disaster Management Project’s i s scaling up the WB’s disaster recovery assistance to the Republic o f Hai t i in the aftermath o f Tropical Storm Noel, which over the period o f October 28 - 30,2007 caused severe flooding resulting in significant loss o f l i fe and damage to the country’s public and pnvate infrastructure The AF i s supporting (1) small works consisting mainly o f rehabilitation o f affected drainage and irrigation systems, schools, health clinics and community centers, and (11) the expansion o f the local risk management activities to ensure full coverage within the five departments where the project i s engaged The project’s closing date was extended with two years until December 31, 2010 to allow sufficient time to implement additional activities

L iber ia : Emergency In f ras t ruc tu re Project14 (AF 2007) The AF scales up successful ongoing activities including the rebuilding o f critical sections o f the rural road network and rehabilitation urban infrastructure while maximizing temporary j ob creation No extension i s required and the project is expected to be 4 years o ld upon completion

Niger: Communi ty Ac t ion P rog ram / Av ian Flu l5(AF 2008) This AF added a new component to the Community Act ion Program for the prevention and control o f Highly Pathogenic Av ian Influenza (HPAI) by (1) l imi t ing the spread o f H P A I infection in animals, (11)

building capacity for appropriate response and recovery in the animal health and public health sectors, and (iii) minimizing the risks o f human influenza An extension o f 1 year was required and it i s expected that the project will be 6.3 years upon completion.

Uruguay: Foot & M o u t h Disease Emergency Recovery Project.16 The AF scale up successful ongoing project activities to support the creation o f a mandatory and full-coverage livestock traclung system Most such activities focus on foot & mouth disease, but the ongoing project was Uruguay also restructure to include new activities related to control o f transborder disease threats such as avian flu An extension o f three years was reamed

DRC

Hai t i

Liberia

Niger

454 125 12

28 NIA 3.0 3 NIA 5.7

12 7.4 62 15 1.8

30 16.5 55 186 2.8

35 4.5 13 17 3.8

8.5 6.5 35 4 2.0

and the project is expected to be 8.5 years old upon completion.

l3

l4

l 5

l6

An emergency operation responding to post-conflict needs under a TSS, as per OP 8.50 and 8.00. An emergency operation responding to post-conflict needs as per OP 8.50 and 8.00. An emergency operation responding to avian flu as per OP 8.00. An emergency operation responding to disease outbreaks in 2000 and 2001, as per OP 8.50 and OP 8 .oo.

27 ANNEX B

3. ADDITIONAL LOANS RJBPONDING T O EMERGENCIES UNDER oP10.00

Amount Percentage Prep time parent of original prep costs PCD-

Project name Country ($m) ($m) amount SAP months project AF total loan ($k) aPP*

Georgia: Irrigation & Drainage Community Development Project” (AF 2005) The AF scales up a successful ongoing water management project in response to unusually heavy floods during the spring of 2005. The focus i s on reconstruction of flood protection embankments and irrigation headworks and conveyance canals that were destroyed or severely damaged by the floods. An extension of 2 years was required. The project i s expected to be 7.5 years old by completion,

Georgia 27 13 48 NIA 1.7

Honduras: Natural Disaster Mitigation Projecti8 (AF 2007) The AF scales up a successful ongoing project to improve the capacity o f eligible municipalities to reduce their vulnerability to natural disasters Financing i s provided for small mitigation works, early warning systems, disaster preparedness and vulnerability assessments An extension of 3 years was required and the project i s expected to be 10 4 years old upon completion.

10 8 Honduras 9 83 72 3.3

Kenya: Arid Lands Resource Management Project Phase Two” (AF 2007) The AF scales up a successhl ongoing project that aims to enhance food secunty, reduce livelihood vulnerability and improve access to basic services m drought prone areas. New distncts are covered, successful drought management and livelihood programs are expanded, eligible non-food expenditures are reimbursed, and a drought contingency fimd is replenished No extension i s required and the project i s expected to be 10 years old upon completion.

Kenya 60 60 100 11 3.1

Kosovo: Clean-up and Land Reclamation Project.20 (AF 2007) The AF scales up a successful ongoing project to help the Kosovar Energy Company contain and clean up hazardous chemicals present at an abandoned gasification plant site and mitigate risks to public health and the environment as we11 as to finance a cost overrun. N o extension was required and the project i s expected to be 4.5 years old upon completion.

5.5 Kosovo 5.0 91 37 2.3

21 Pakistan: Highway Rehabilitation Project (AF 1 2006) (AF 2 2006) The AF scales up a successful ongoing highway improvement project to enable reconstruction and rehabilitation about 180 km of roads damaged by the earthquake o f October, 2005, and to cover cost overruns due mainly to oil and transportation cost increases not anticipated at appraisal. N o extension was required and i t i s expected that the project wi l l be 5.5 years old upon completion.

(two operations)

Pakistan 200 65 100

33 50

17 1.4 0 1.8

A specific investment operation responding to sector needs, as per OP 10.00. A technical assistance operation responding to 1999 hurricane restructured in 2004 to include financing o f goods and works as per OP 13.05 and OP 10.00. A specific investment operation responding to sector needs, as per OP 10.00. A specific investment operation responding to sector needs, as per OP 10.00. A specific investment operation responding to sector needs, as per OP 10.00.

17

18

19

20

21

ANNEX B

Amount Percentage Prep time parent of original Prep costs PCD-

Project name Country ($m) ($m) amount SAP months project A F total loan (%k) UPP.

Pakistan: Second Poverty Alleviation Fund Project-Earthquake22 (three operations) (AF 1 2006) (AF 2 2007) (AF 3 2008) The AF restructures and scales up a successful ongoing project in response to the earthquake of October, 2005, so as to finance a larger share of the Rural Housing Reconstruction Program. A second and third AF was approved when needs were determined to be greater than understood at appraisal of the first AF. An extension of 1.9 years was required and it i s expected that the project will be 6.7 years old upon completion.

Pakistan: North ‘West Frontier Province On-Farm Water Management Project (NWFP-OFWM)23-Earthquake (AF 2006) The AF restructures and scales up a successful ongoing rural irrigation project so as to add a new “Z” component for emergency flood and earthquake recovery and mitigation in response to the earthquake o f October, 2005, and floods during the preceding summer. Activities include the repair o f water, sanitation, road and other systems and support to households reestablishing their homes and livelihoods. An extension of 1.5 years was required and the project i s expected to be 6.5 years old upon closing.

... ............. . . ........... .. . . . . . .. ..... . ..... ............................. ... .... ........................... ............ ........................ ........

100 42 48 1.4 Pakistan 238 138 58 NIA 2.8

75 32 18 2.2

Pakistan 21.4 10 47 32 1.4

Pakistan: AJK-Community Infrastructure and Services Project (AJK-CISP Earthq~ake)~~ (AF 2006) The AF restructures and scales up a successful on going project so as to add new “Z” component for emergency flood and earthquake recovery and mitigation in response to the earthquake of October, 2005, and floods during the preceding summer. Activities include the repair o f water, sanitation, road and other systems and support to households reestablishing their homes and livelihoods. An extension of 2 years was required and the project i s expected to be 6.5 years old upon completion.

Pakistan 20 30 150 NIA 1.4

Serbia: Irrigation and Drainage Rehabilitation Projece5.(AF 2007) The AF scales up the flood rehabilitation and control component of a successful ongoing project in response to the floods of 2005 and 2006. Areas protected increased from 56,000 ha to 500,000 ha, and populations urotected increased from 250,000 to 1.8 million. No extension was

Serbia 25 49.4 198 56 3.7

required and the project i s expected to be 6 years old upon completion. Total AF Loans as Response to Emergency and processed as per OP8.50, OP8.00 and OP10.00.

1358 974 714 70.3

Number of operations 19 25 25 25 Average 76 41 45 3 Median 28 21 24 2.45

22

23 A financial intermediary operation responding to sector needs as per OP 10.00. A specific investment operation responding to sector needs, as per OP 10.00. A specific investment operation responding to sector needs, as per OP 10.00. A specific investment operation responding to sector needs, as per OP 10.00.

24

25