of The World Bank FOR OFFICIAL USE ONLY · 2016. 7. 17. · document of the world bank for official...

Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 30874-AZ

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 7.5 MILLION (US$11.5 MILLION EQUIVALENT)

TO THE

AZERBAIJAN REPUBLIC

FOR A N

INTERNALLY DISPLACED PERSONS ECONOMIC DEVELOPMENT SUPPORT PROJECT

JANUARY 19,2005

Infrastructure and Energy Sector Unit South Caucasus Country Unit Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 19,2005)

ADB CFAA CQS cu EMP EU FBS F M FMR GDP ICB IDP IDPiEDS IFRS LCS M&E MFI MTR NCB O M PLI PPL PRSC S SFDI SOE SPA SPPRED UNDP UNCHR USAID

Currency Unit = A Z M 4,903.00AZM = US$1

US$1.52 = SDR 1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS Asian Development Bank Country Financial Accountability Assessment Consultant Qualification Selection Credit Union Environmental Management Plan European Community Fixed Budget Selection Financial Management Financial Management Reports Gross Domestic Product International Competitive Bidding Internally Displaced Person IDP Economic Development Support Project International Financial Reporting Standards Least-Cost Selection Monitoring and Evaluation Micro-Finance Institutions Mid-Term Review National Competitive Bidding Operations Manual Partner Lending Institution Public Procurement Law Poverty Reduction Support Credit Shopping Social Fund for the Development o f IDPs Statement o f Expenses State Procurement Agency State Program for Poverty Reduction and Economic Development United Nations Development Program United Nations High Commission for Refugees United States Agency for International Development

Vice President: Shigeo Katsu

Sector Director: Hossein Razavi Sector Manager: Sumter L e e Travers

Task Team Leader: Ellen Hamilton

Country ManagedDirector: D-M Dowsett-Coirolo

A . 1 . 2 . 3 . B . 1 . 2 . 3 . 4 . 5 . 6 . C . 1 . 2 . 3 . 4 . 5 . 6 . D . 1 . 2 . 3 . 4 . 5 . 6 . 7 .

FOR OFFICIAL USE ONLY AZERBAIJAN

IDP ECONOMIC DEVELOPMENT SUPPORT

CONTENTS

STRATEGIC CONTEXT AND RATIONALE Page

1

Country and sector issues ..................................................................................................... 1

Rationale for Bank involvement .......................................................................................... 1

Higher level objectives to which the project contributes ..................................................... 2

PROJECT DESCRIPTION 2

Lending instrument .............................................................................................................. 2

Program objective and Phases ............................................................................................. 2

Project development objective and k e y indicators., ............................................................. 3

Project components .............................................................................................................. 3

Lessons leamed and reflected in the project design ............................................................. 4

Altematives considered and reasons fo r rejection ............................................................... 5

IMPLEMENTATION 5

Partnership arrangements (if applicable) ............................................................................. 5

Institutional and implementation arrangements ................................................................... 5

Mon i to r ing and evaluation o f outcomes/results ................................................................... 6 . . . Sustainability ........................................................................................................................ 7

Crit ical r isks and possible controversial aspects .................................................................. 8

Loadcredi t conditions and covenants .................................................................................. 8

A P P R A I S A L S U M M A R Y 8

Economic and financial analyses ......................................................................................... 8

Technical .............................................................................................................................. 9

Fiduciary .............................................................................................................................. 9

Social .................................................................................................................................... 9 Environment ....................................................................................................................... 10

Safeguard policies .............................................................................................................. 10

Pol icy Exceptions and Readiness ....................................................................................... 11

This document has a restr icted d is t r ibut ion and may be used by recipients only in the performance o f their of f ic ia l duties . I t s contents may n o t be otherwise disclosed w i thout W o r l d Bank author izat ion .

Annex 1: Country and Sector or Program Background ................................................................. 12 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ........................... 15 Annex 3 : Results Framework and Monitoring ............................................................................... 16 Annex 4: Detailed Project Description .......................................................................................... 18 Annex 5: Project Costs ................................................................................................................... 20 Annex 6: Implementation Arrangements ....................................................................................... 21 Annex 7: Financial Management and Disbursement Arrangements ............................................. 24 Annex 8: Procurement Arrangements ............................................................................................ 30 Annex 9: Economic and Financial Analysis .................................................................................. 35

Annex 11: Project Preparation and Supervision ............................................................................ 39

Annex 14: Country at a Glance ...................................................................................................... 43

Annex 10: Safeguard Policy Issues ................................................................................................ 36

Annex 12: Documents in the Project File ...................................................................................... 40 Annex 13: Statement o f Loans and Credits ................................................................................... 41

MAP IBRD 33365

AZERBAIJAN

ASSOCIATION Total:

IDP ECONOMIC DEVELOPMENT SUPPORT PROJECT

12.05 0.55 12.60

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSIE

Date: January 19,2005 Country Director: D-M Dowsett-Coirolo Sector ManagedDirector: Sumter Lee Travers

Team Leader: Ellen Hamilton Sectors: Other social services (70%); Micro- and SME finance (30%) Themes: Conflict prevention and post-conflict reconstruction (P);Other social development

Environmental screening category: Financial Intermediary Assessment Safeguard screening category: N o impact

(P) Project ID: PO8975 1

Lending Instrument: Specific Investment Loan

[ ]Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: Project Financing Data

For Loans/Credits/Others: Total Bank financing (US$m.): 11.50 Proposed terms: Standard IDA with 35 years maturity

Borrower: Government o f AzerbaijadMinistry o f Finance Baku, Azerbaijan Tel: (994-12) 493-30-12

Responsible Agency: Azerbaijan Republic Social Fund for Development o f IDPs (SFDI) 65 Fizul i Street, 5th Floor Baku, Azerbaijan 370010 Tel: (994-12)495-30-23 / 495-83-86 Fax: (994-12)495-70-47 [email protected]

i

?Y 2006 2007 2008 0 0 0 h u a l 3.50 4.00 4.00 0.00 0.00 0.00 hmulat ive 3.50 7.50 11.50 0.00 0.00 0.00

Expectedclosing date: December 3 1,2008 Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3

[ ]Yes [XINO

0 0 0 0.00 0.00 0.00 0.00 0.00 0.00

Does the project require any exceptions from Bank policies? Re$ PAD D. 7

I s approval for any pol icy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Re$ P A D C.5 Does the project meet the Regional criteria for readiness for implementation? Re$ P A D D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The proposed IDP Economic Development Support Project (IDP-EDS) is a repeater project that replicates part o f the Pilot Reconstruction Project (Cr. 3 1090/3 1091-AZ), and its objective, like that o f i t s predecessor, i s to help improve the living conditions o f IDPs and enhance their economic opportunities and prospects for social integration.

Project description Re$ PAD B.3.a, Technical Annex 4 IDP-EDS wil l consist o f three components: (1) micro-projects: financing the preparation and implementation o f up to about 200 small-scale projects o f rehabilitation, repair or reconstruction of, as well as the acquisition o f related equipment for: (a) basic small infrastructure, such as water supply and sewage networks, electricity networks, access roads, and drainage systems; (b) social infrastructure such as schools, community centers; and (c) temporary shelter facilities. (2) micro-finance resources: providing financing to Partner Lending Institutions (PLIs) for the extension o f micro-finance to IDPs; and (3) IDP/EDS Implementation Support: financing (a) the operating costs o f SFDI (including staff salaries, office consumables, utilities, in-country travel, office and vehicle maintenance, insurances, etc., as well as renewal o f office equipment and vehicles), (b) SFDI staff training, (c) portfolio development activities, (d) annual audits, and (e) monitoring and evaluation surveys and studies.

[ ]Yes [XINO

[ ]Yes [XINO

[ ]Yes [XINO

[XIYes [ ] N o

Have these been approved by Bank management? [ ]Yes [ IN0

Which safeguard policies are triggered, if any? Re$ P A D 0.6, Technical Annex 10 0 Environmental Assessment (OP/BP/GP 4.01); 0 Projects on International Waterways (OP/BP/GP 7.50).

.. 11

Significant, non-standard conditions, if any, for: Re$ PAD C.7 None. Board presentation: Not applicable.

Loadcred i t effectiveness: (1) Standard Conditions and the Subsidiary Grant Agreement has been executed on behalf o f the BorrowedRecipient and SFDI; (2) Adoption o f a revised Operational Manual, satisfactory to the Association, by SFDI.

Covenants applicable to project implementation: Not applicable.

... 111

A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues

Azerbaijan’s armed conflict with Armenia over the Upper Garabagh region, which lasted from 1992 to 1994, l e f t over 30,000 dead and over 1 mi l l ion people displaced. About 575,000 or 15% of Azerbaijan’s population became ‘internally displaced persons’ (IDPs), (in addition to the about 200,000 Azerbaijanis who returned from Armenia).

During the first years o f the post-conflict period the Government gave the highest priori ty to resettling the refugees from Armenia, since i t was unlikely they would ever be able to retum to their original places of residence. IDPs were expected, at least in principle, to retum to the areas from where they had been displaced as soon as a political settlement o f the conflict could be reached. Efforts to resettle them or promote their social and economic integration were therefore viewed as a lower priority and considered a purely “temporary” necessity. About 36,000 IDPs from the areas that were only temporarily occupied by Armenian forces at the time o f their farthest advance into Azerbaijan could indeed return to their locations in connection with the reconstruction efforts undertaken joint ly by the Government and the International Donor Community.

The strain on the Azerbaijan economy that results from caring for these IDPs i s substantial. The Government supports all IDPs with provision o f a monthly cash grant (about U S D 5 per person per month), food subsidies (about USD 3 per person per month) and free utilities (electricity, water, etc.). These measures alone cost the Government about USD 100 mi l l ion every year (about 2 % o f GDP) and are supposed to last until the people have either returned to their places of origin (which would presuppose a workable peace agreement with Armenia) or have been permanently resettled and provided with productive agricultural land or another basis for livelihood at their current places o f living.

Chances for a rapid settlement o f the conflict remain uncertain and the Government has begun to revise i t s strategies and approaches to the IDP problem. The Government’s f i rst pr iori ty has now become to resettle the IDPs s t i l l living in tent camps and other temporary shelters outside Baku. To this end, a series o f new settlements have been built in previously unoccupied areas o f the country with Government resources. To date, about 25,000 o f these IDPs have already been resettled and another 16,000 are expected to have moved by the end o f 2005.

However, even among those IDPs that do not have to be relocated immediately, many live in conditions where infrastructure, housing and service needs are substantial. Large numbers dwell in excessively poor housing conditions in school dormitories, former hotels and/or occupy public buildings. Others live in informal settlements that often lack most elementary services, such as water supply and electricity, schools or health facilities. Economic opportunities are limited and unemployment i s high, especially in places outside the Greater Baku area.

2. Rationale for Bank involvement

Together with UNDP, U N C H R and the EU, the Wor ld Bank developed in 1997-98 a U S D 120.0 mi l l ion priority program for the Resettlement and Reconstruction of Liberated Territories. To finance the first phase o f that program, the Bank approved in August 1998 a U S D 20.0 mil l ion

1

IDA credit (Cr. 31090-AZ) for a ‘Pilot Reconstruction Project’. The credit was complemented by parallel financing from UNDP (USD 3.2 million), U N C H R (USD 12.1 million) and EU (USD 9.5 million), and supported by a Government contribution o f U S D 9.5 mil l ion. The purpose of the project was to help Azerbaijan rebuild economic and social infkastructure in the war ravaged regions and al low as many IDPs as possible to retum to their places o f origin. The efforts were relatively successful. A sizeable portion o f transport, energy transmission and other infrastructure in these territories was rebuilt. As mentioned above, about 36,000 IDPs were able to retum to the areas where they came from, and economic activities there have resumed.

To address the needs and help improve the living conditions o f IDPs from other regions, the Bank agreed in June 1999 to provide a USD 10.0 mi l l ion ‘Supplemental Credit’ to the ‘Pilot Reconstruction Project’ (Cr. 3 1091-AZ). Specifically, the Supplemental Credit was to finance (through the ‘Social Fund for IDP Development-SFDI’) micro-projects with social and economic objectives, and to provide micro-credits to enhance the economic opportunities o f IDPs. This second component o f the project has financed about 190 micro-projects o f an average cost o f about U S D 35,000 for a reported total o f about 160,000 beneficiaries. About U S D 1.8 m i l l i on in funds have been used to provide funding to partner lending institutions, which, in tum, are using the funds for about 2,500 active clients.

The ‘Pilot Reconstruction Project’ wil l close on June 30, 2005. The project has not encountered any fiduciary problems. All audits have been consistently unqualified. At this point, virtually al l project resources have been committed and al l activities are expected to be fully completed by the time o f closing. Importantly, a large number o f applications for micro-projects that were submitted to SFDI by the IDP communities could not be funded for lack o f resources, but are ready for implementation.

3. Higher level objectives to which the project contributes

Improving the living conditions and economic opportunities o f IDPs i s an explicit objective of the Government’s poverty reduction strategy formulated in the State Program on Poverty Reduction and Economic Development (SPPRED). The Government objective i s fully consistent with the Third Strategic Goal o f the 2003 CAS which focuses on improving social services and infrastructure.

B. PROJECT DESCRIPTION 1. Lending instrument

Specific Investment Loan (SIL)

2. Program objective and Phases

N o t applicable.

2

3. Project development objective and key indicators

A. Micro-projects

B. Micro-credits

C. IDP/EDS Implementation Support

Total

The proposed ‘IDP Economic Development Support Project (IDP-EDS)’ i s a ‘repeater project’ that replicates part o f the ‘Pilot Reconstruction Project’ (Cr. 3 1090/3 1091-AZ), and i t s objective, l ike that o f i ts predecessor, is to help improve the living conditions o f IDPs and enhance their economic opportunities and prospects for social integration.

10.5 10.2 0.3 97%

0.5 0.0 0.5 0%

1.5 1.3 0.3 82%

12.6 11.5 1.1 91%

Key indicators:

Progress in achieving development objectives wi l l be assessed periodically by key performance indicators measuring project outputs and outcomes. The results framework is detailed in Annex 3. Indicators wi l l include the following:

0

0 Number o f micro-projects completed Overall satisfaction o f the IDP community with project-supported improvements

0 Number o f micro-project beneficiaries 0 Number o f micro-credit loans extended by Partner Lending Institutions (PLIs)

Number o f active P L I clients.

The social fund character o f the project implies that specific sector and project choices wil l be made in the course o f implementation. Indicators to reflect the specific conditions and achievements wi l l be further refined as sub-project choices are made.

4. Project components The proposed IDP-EDS wil l replicate the ‘Social Fund for Development o f IDPs’ component o f the ‘Pilot Reconstruction Project’, (Cr. 3 1091 -AZ). Accordingly, IDP-EDS wil l consist o f three components: (a) micro-projects; (b) micro-credits; and (c) IDP/EDS implementation support.

The table below provides a project cost estimate and indicative financing plan for the project components:

Table 1 : Estimated Project Costs and Indicative Financing Plan (in USD million)”

1 E . 1 1 IDA 1 Government I D A % o f I total I

* Numbers may not sum due to rounding.

3

A. The component will finance the preparation and implementation o f up to about 200 small-scale projects (average cost about USD 50,000) o f rehabilitation, repair or reconstruction as well as the acquisition o f related equipment, for:

Micro-proiects (USD 10.5 million; IDA U S D 10.2 mi l l ion equivalent)

0

0

0 temporary shelter facilities.

basic small infrastructure, such as water supply and sewage networks, electricity distribution networks, access roads, and drainage systems; social infrastructure such as schools, community centers; and

To be eligible for SFDI financing all such micro-projects must be identified and selected by the beneficiary IDP communities themselves who provide a cash-contribution o f 3% o f the total cost as a demonstration o f their commitment. A large number o f such micro-projects have already been identified under the ‘Pilot Reconstruction Project’ but could not be funded for lack of resources.

All projects must demonstrate that they represent the least-cost approach to the problems they are meant to address in terms o f both the actual cost o f the investment and the resulting operations and maintenance costs (for a detailed description, see Annex 4).

B. Micro-Credits (USD 0.5 Mi l l ion; IDA 0.0 mi l l ion equivalent)

The component, which wil l be financed exclusively from counterpart funding resources, wil l provide financing to Partner Lending Institutions (PLIs) for the extension o f micro-credits to IDPs. Geographically, the use o f SFDI micro-finance resources wil l be restricted to the Greater Baku area (i.e. the Absheron Peninsula and the cities o f Baku and Sumgait) in order to avoid any territorial overlap or conflict with the Bank’s existing Agricultural Development and Credit Project (Cr. 32360-AZ) and the proposed ADB Micro and Rural Finance Project, (for a detailed description, see Annex 4).

C. IDP/EDS Implementation Support (USD 1.5 million, IDA 1.3 mi l l ion equivalent)

The component will finance (a) the operating costs o f SFDI (including staff salaries, office consumables, utilities, in-country travel, office and vehicle maintenance, insurance, etc. as well as renewal o f office equipment and vehicles), (b) SFDI staff training, (c) portfolio development activities, (d) annual audits, and (e) monitoring and evaluation surveys and studies (for a detailed description, see Annex 4).

5. Lessons learned and reflected in the project design

The experience o f social fund projects in E C A and other regions shows that the successful achievement o f the objectives o f this type o f operation depends on a number o f specific elements: (a) involvement o f local communities in decisions on local investments generates local ownership and reduces the risk of post-project loss of purpose and commitment; (b) even though one-time investments in a community can be useful, a significant economic, social, or institutional impact can only be achieved through supporting the community over a number of years; and (c) adequate attention must be paid to the lack o f local capacity and expertise in the

4

design o f the implementation arrangements keeping them as simple and cost-effective as possible.

These lessons were taken in to account in designing the ‘Pilot Reconstruction Project’ by (a)placing a l l decisions o n the selection o f SFDI investments in to the hands o f the IDP communities themselves; and (b) simplifying the implementation arrangements and investing SFDI with the exclusive responsibility for the actual management o f implementation. Experience o n the first project showed these elements worked w e l l and they wil l be continued in the IDP/EDP project.

6. Alternatives considered and reasons for rejection

N o alternatives were considered for IDP-EDS. In v iew o f the successful implementation o f the ‘Pilot Reconstruction Project’, the Azerbaijan Government requested, and the Bank concurred, that an operation that wou ld replicate the SFDI component o f that project was the most effective solution to achieve the project objectives: namely improv ing the living conditions o f IDPs and enhancing their economic opportunities and prospects for social integration.

Repeating the ‘Pi lot Reconstruction Project’ in i t s entirety was considered unnecessary since the reconstruction o f war-damaged larger infrastructure i s by n o w largely completed and s t i l l existing reconstruction needs are covered by funding f r o m Government sources.

Extending another supplemental credit to the ‘Pilot Reconstruction Project’ was deemed unfeasible as the proposed operation wou ld not satisfy the requirements for supplemental lending as defined in OP 13.20.

C. IMPLEMENTATION 1. Partnership arrangements (if applicable)

The project does not entail any co-financing o r other fo rm o f support f rom other donors. However, the project was prepared, and wil l be implemented, in close coordination with other donors s t i l l invo lved in support to IDPs in Azerbaijan, namely, UNCHR, UNDP, and USAID, as we l l as the Asian Development Bank (ADB).

2. Institutional and implementation arrangements

IDPiEDS wil l be implemented over a period o f three years (thirty-six months), commencing o n July 1, 2005, the expected t ime o f effectiveness o f the Credit. The project i s expected to be completed o n June 30, 2008 with the closing date o f the Credit set for December 31, 2008. A Mid-Term-Review (MTR) i s planned for October 2006.

IDP/EDS wil l re ly wi thout any major change o n the implementation arrangements, including existing staff, agreed for the SFDI component o f the ongoing ‘Pilot Reconstruction Project’.

IDP/EDS wil l be implemented by the ‘Social Fund for the Development o f IDPs -SFDI’. SFDI was created as an autonomous agency reporting to the cabinet o f ministers fo r the purpose of implementing the SFDI component o f the ‘Pilot Reconstruction Project’ by Presidential Decree

5

No. 215 o f December 6, 1999. I t i s governed by a Board o f Directors whose members are from the Azerbaijan Government, the donor community, and the non-governmental and private sector. In accordance with the Government Decree No. 151 o f October 15, 2004 the Government i s represented by the Deputy Prime Minister (chair), and representatives o f the Min is t r ies o f Finance, Labor and Social Protection, and the State Committee for IDPs. The International Donor Community is represented by UNDP, U N C H R and USAID. The non-governmental and private sector i s represented by representatives o f the Exxon-Mobil Corporation, the Azerbaijan Forum o f Non-Governmental Organizations, and the Azerbaijan Union o f Small and Medium Enterprises.

The organizational structure and working procedures o f SFDI are defined in an Operations Manual (OM). The O M has been revised prior to Negotiations to take into account the lessons learned and the experience gained from the implementation o f the ‘Pilot Reconstruction Project’ (for a detailed description o f SFDI operating procedures, see Annex 6).

The implementation o f the micro-project component i s based on the following arrangements:

a micro-projects are identified by IDP communities, either directly or with assistance from NGOs in response to information campaigns about the project that are undertaken by SFDI through the media and direct contact;

and either accepts or rejects the applications or requests further explanations;

in the case of accepted applications, SFDI prepares al l necessary technical studies, final design and tender documents required for the micro-project;

subsequently, SFDI carries out al l procurement, hires contractors, and supervises the work implementation;

upon completion of the works, SFDI transfers the assets into the ownership o f the IDP community or the relevant local authority, as the case may be.

a SFDI screens the applications received for their compliance with SFDI eligibility criteria

a

a

a

The implementation o f the micro-credit component will be based on the following arrangements:

0 SFDI will on-lend IDP/EDSP micro-credit resources to Partner Lending Institutions (PLIs) that satisfy SFDI eligibility criteria and are selected through a transparent application and appraisal process, (for on-lending and PLI eligibility conditions, see Annex 4).

Eligible PLIs wil l extend micro-credits to IDP clients in accordance with their own credit policies, and credit terms and conditions.

a

3. Monitoring and evaluation o f outcomes/results

Monitoring and evaluation [M&E] wil l be the responsibility o f SFDI. Monitoring project progress and achievements wi l l require a continuous and systematic review o f different aspects o f project implementation. In keeping with this goal, M&E activities wi l l focus on (a) ensuring that micro-projects are implemented in accordance with procedures and contracting arrangements defined in the OM; (b) providing information on project implementation

6

performance in terms o f social benefits; (c) alerting SFDI managers to actual and/or potential problems in implementation so that remedial action can be taken in a timely fashion; and (d) providing a mechanism for SFDI to continuously self-evaluate i t s performance and explore possible improvements.

The results o f M&E activities wi l l be reflected in SFDI’s quarterly and annual progress reports. The progress reports wi l l cover progress in micro-project implementation, and micro-credit extension. They wil l also include financial management reports (FMR). The fourth quarterly report will summarize the results achieved during the year and provide a work plan and a corresponding budget for the fol lowing year.

4. Sustainability

By definition, the status o f IDP i s expected to be o f purely temporary nature, as i t assumed that IDPs either would eventually return to the disputed territories or integrate into the society at the places where they are currently living. The primary purpose o f the proposed IDP/EDS i s precisely to help achieve the latter objective: that is, to facilitate the rapid social and economic integration o f IDPs into the host communities and contribute to creating the conditions for a better sustainability o f their livelihood.

As demonstrated by the experience o f the ‘Pilot Reconstruction Project’, I D P communities can be expected to make a significant effort to adequately operate and preserve the assets provided to them under the proposed project. With the social and economic integration o f the IDPs into the host communities, the investments financed under IDP/EDS wil l see a gradual transfer into the ownership o f the local governments for the areas where the IDP communities are located. To this effect, attention wil l be paid by SFDI to prioritize ‘dual use’ investments, that i s micro- projects that will be o f use to both the IDP groups and the host community.

7

5. Critical risks and possible controversial aspects

Potential risks and mitigation

Risk

Micro-projects are selected without adequate social, economic and/or technical justification.

Investments for IDP communities lead to tensions with host communities, especially in poorer areas.

Partner Lending Institutions (PLIs) fa i l to responsibly manage extension o f credits.

SFDI management decisions are subject to political interference.

Mitigation Strategy

Refinement o f selection and evaluation criteria.

Accessibility o f IDP/EDS investments to non-IDP social groups wil l be a key selection criterion.

Adoption o f strict eligibility criteria for Partner Lending Institutions.

SFDI Board i s composed o f representatives o f Government, donor community and private sector.

Possible Controversial Aspects:

There are no controversial aspects, nor are any controversies expected to develop during project implementation.

6. Loadcredit conditions and covenants

1. Effectiveness Conditions

0 Standard Conditions and the Subsidiary Grant Agreement has been executed on behalf o f the Borrower/Recipient and SFDI

Adoption o f a revised Operations Manual, satisfactory to the Association, by SFDI. 0

2. Other [classify according to covenant types used in the Legal Agreements.]

None.

D. APPRAISAL S U M M A R Y 1. Economic and financial analyses

A traditional economic analysis i s not feasible due to the social fund nature o f IDP/EDS so a prior estimation o f the net present value or the economic intemal rate o f retum for the whole

8

project cannot b e made. This i s because al l micro-projects wi l l be identified during the lifetime o f the project and may vary considerably in their objectives, technical nature, and types o f benefits. Approval o f micro-projects by SFDI wil l be based on rigorous selection criteria defined in the Operations Manual. This i s a continuation o f the practice under the Pilot Reconstruction Project, which has worked well.

2. Technical

The objective o f IDP/EDS i s to help improve the living conditions o f IDPs and enhance their economic opportunities and prospects for social integration. Achieving the objectives requires the selection of investments that are technically sound and represent the least-cost solution - in terms o f both investment and operation and maintenance costs - to the problems they are meant to address.

3. Fiduciary

A procurement capacity assessment was conducted for the Project. Risk has been rated high and mitigation measures were agreed with SFDI (See Annex 8 for detailed procurement report). In addition, the Bank assessed capacity o f SFDI to carry out i t s financial management (FM) responsibilities under the Project (see Annex 7 for detailed FM Assessment Report). Current SFDI staff are familiar with the Bank’s fiduciary requirements relating to procurement, financial management, disbursements and audit. However, additional staff to be hired under the IDP/EDS wil l require some training on World Bank procedures for procurement, financial management and disbursement. A suitable accounting system, based on I C software, i s in place and has capacity to generate Financial Monitoring Reports (FMR). Amendments to the SFDI Financial Management Manual, satisfactory to the Bank, have been made to accommodate the needs o f IDP/EDS. Overall, the SFDI Financial Management wil l be responsible for the financial management processes o f IDP/EDS, including budgeting, accounting, reporting and audit, and wil l ensure compliance with the World Bank audit requirements.

4. Social

There are no involuntary resettlement issues raised by the project.

There i s an ongoing discussions on the relative merits o f an exclusively IDP “targeted” approach vs. a general, poverty focused approach that would address the issue o f IDPs as part o f an overall poverty reduction effort, and not through systematic targeting o f IDPs. W h i l e i t i s advisable to address communities with significant number o f IDPs but extend the benefits o f available income generation and community development programs to al l members o f the community, a diffused, poverty focused approach which would not target IDP communities wi l l not help address the poverty and extremely poor living conditions o f this poor and vulnerable group. I f the various types o f cash and other assistance provided to IDPs by the Govemment are not taken into account, the IDPs have significantly lower incomes and standards o f living compared to other poor in Azerbaijan. Also, the trauma and relative deprivation suffered by them due to sudden displacement from stable communities with sustainable livelihoods does merit preferential assistance compared to the other poor o f Azerbaijan.

9

5. Environment

IDP/EDS i s not expected to have any significant or irreversible environmental impacts, and i s classified as Environmental Category "FI". Many o f the micro-projects are expected to produce environmental benefits (for example reduction in erosion through proper road rehabilitation or small-scale wastewater treatment). However, because the micro-projects are not pre-identified, there could be unforeseen environmental impacts during implementation. An environmental review procedure for screening and assessing environmental impacts o f micro-projects, as well as developing mitigation plans, has been developed in the Environment Management Plan (EMP), which describes the framework o f procedures and measures to mitigate any adverse impacts to the environment and is part o f the Operational Manual. Environmental assessments wil l be carried out for specific micro-projects and/or project sites as appropriate. The SFDI staff wil l include a qualified environmental specialist to oversee compliance with the EMP. Alternatives to specific micro-projects will be considered and assessed during micro-project preparation and appraisal, as per guidelines provided in the EMP. Experience under the first project has shown that environmental issues were adequately handled during micro-project preparation and implementation. SDFI has maintained detailed records documenting environmental issues that were addressed by the f i r m s contracted to implement the sub-projects.

The short-term impacts, which inevitably occur during construction, wil l be minimized by proper planning and application o f preventive measures, and wil l be mitigated by restorative actions after the c iv i l works are completed. U s e o f construction materials, which are hazardous to human health (e.g. asbestos) wil l not be permitted. SFDI wil l ensure that al l investments obtain clearances as required per Azerbaijan national regulations.

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [XI [ I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [ I [XI Cultural Property (OPN 11.03, being revised as OP 4.1 1) [XI Involuntary Resettlement (OP/BP 4.12) [ I [XI Indigenous Peoples (OD 4.20, being revised as OP 4.10) [XI Forests (OP/BP 4.36) [ I [XI Safety o f Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI Projects on International Waterways (OP/BP/GP 7.50) [XI [ I

[ I

[I

Involuntary Resettlement. [World Bank OP 4.121 IDP/EDS not trigger OP/BP 4.12 as the project wil l deal exclusively with rehabilitation/repair/upgrading o f existing infrastructure and installations on existing premises or new routes o n public rights o f way which wil l not entail any land acquisition, relocation o f population, or restrictions on access to resources.

* By supporting the proposed project, the Bank does not intend to prejudice the f ina l determination ofthe parties' claims on the disputed areas

10

International Waterways (World Bank OP 7.50). Some of the micro-projects supported by the project may be linked to trans-boundary waterways, as defined in OP 7.50. However, the project qualifies for an exception from notifying the governments o f the other riparian countries o f the Caspian Sea basin, since none of the project activities are likely to attempt to modify the course of waterways and to significantly increase the volume o f water abstraction from, or the discharge of waste water to, trans-boundary water bodies as defined by OP7.50, thus affecting the water rights of the other riparians. A memorandum to the Regional Vice President seeking his agreement on the finding of the Project Team that the investment activities under the Project qualify for an exception from riparian notification requirement o f OP/BP 7.50 was submitted to, and signed by, the Regional Vice President on November 16, 2004.

7. Policy Exceptions and Readiness

The project wi l l not entail any pol icy exceptions and wil l comply with al l applicable Bank policies. The project i s a social fund type operation and therefore no investment program can be identified prior to Negotiations and Board presentation. SFDI, the implementing agency i s fully operational and has developed a comprehensive Operations Manual (OM) under the ‘Pilot Reconstruction Project’. The OM has been revised for the proposed IDP/EDS to take into account the lessons learnt from the f i rst operation. Adoption o f a revised Operations Manual, satisfactory to the Association, by SFDI i s a condition for Credit Effectiveness.

11

Annex 1 : Country and Sector o r Program Background

AZERBAIJAN: IDP ECONOMIC DEVELOPMENT SUPPORT PROJECT

Upper Garabagh i s an area within Azerbaijan that was largely populated by ethnic Armenians. The territory was given autonomous status inside the Azerbaijan Soviet Republic in 1923 after disputes within the Soviet government over whether to attach i t to Armenia or Azerbaijan. Tensions resurfaced in the last years o f the Soviet regime. After some inter-ethnic clashes in Azerbaijan in 1990, Upper Garabagh declared i t s independence in September 1991 and in early 1992 Armenia forces occupied the territory as well as a swath o f surrounding areas originally inhabited by non-Armenian Azerbaijanis. The armed conflict lasted from 1992 to 1994, le f t over 30,000 dead and over 1 mi l l ion people displaced. About 575,000 people, or 15% o f Azerbaijan’s population, became ‘internally displaced persons’ (IDPs). Discussions about a peace agreement are s t i l l ongoing and the prospects for a solution to the conflict remain uncertain.

About 200,000 Azerbaijan nationals le f t Armenia. During the f i rs t post-conflict years the Government gave the highest priority to resettling these refugees since i t was assumed that, even if there should be a peace agreement, they would never be able to retum to their original locations. IDPs were expected, at least in principle, to return to the places from where they came as soon as conflict was settled. Efforts to resettle them or promote their social and economic integration were therefore viewed as a lower priori ty and a purely “temporary” necessity. About 36,000 IDPs from the areas that were only temporarily occupied by Armenian forces at the time of their farthest advance into Azerbaijan could retum to their areas o f origin in connection with the reconstruction efforts undertaken by the Government and the Intemational Donor Community. The majority o f IDPs, however, could not retum. Many IDPs moved to the Greater Baku area (Le. the cities o f Baku and Sumgait and the adjacent Absheron peninsula), where, in 2003, 155,000 IDPs were officially registered as residents.

Chances for a rapid settlement o f the conflict have not materialized yet and the Government has begun to revise i t s strategies and approaches to the IDP problem. The Government’s f i rst pr iori ty has now become to resettle those IDPs living in tent camps and other temporary shelters outside Baku. To this end, a series o f new settlements were built in previously unoccupied areas of the country. To date, about 25,000 such IDPs have been resettled and another 16,000 are expected to be resettled by the end o f 2005.

However, even for those IDPs that do not have to be relocated immediately, living conditions are often abysmal. Large numbers are housed in run down school dormitories, former hotels and/or occupy public buildings. Others l ive in informal settlements in the periphery o f the two cities which often lack most elementary services such as water supply and electricity, schools or health facilities. A report prepared in connection with the preparation o f the proposed IDP/EDS’ showed that a significant number o f large multi-generational IDP families lived in one single room of 18 to 20 square meters and rel ied on communal cooking and sanitary facilities.

Together with UNDP, U N C H R and the EU, the World Bank developed in 1997-98 a USD 120.0 mi l l ion priority program for the Resettlement and Reconstruction of Liberated Territories. To

IDPs in Baku: A Qualitative Approach, Asen Balikci, University o f Montreal (Canada), 2004

12

finance the first phase o f that program, the Bank approved in August 1998 a USD 20.0 mi l l ion IDA credit (Cr. 31090-AZ) for a ‘Pilot Reconstruction Project’. The credit was complemented by parallel financing from UNDP (USD 3.2 million), UNCHR (USD 12.1 mil l ion) and EU (USD 9.5 million), and supported by a Government contribution o f USD 9.5 mil l ion. The purpose of the project was to help Azerbaijan rebuild economic and social infrastructure in the war ravaged regions and al low as many IDPs as possible to return to their places o f origin. Even though some init ial delays were experienced and some components had to be dropped, the efforts were relatively successful. A sizeable portion o f transport, energy transmission, irrigation and social and educational infrastructure was rebuilt. As mentioned above, about 36,000 IDPs were able to return to their areas o f origin, and economic activities there have resumed. A notable contribution o f the project to the latter objective was the provision o f about 700 head o f new livestock to IDP households.

In % o f t o t a l 24 18 2 20 2 15 16 12

To address the needs and help improve the living conditions o f IDPs f rom other areas the Bank agreed in June 1999 to provide a U S D 10.0 mi l l ion ‘Supplemental Credit’ to the ‘Pilot Reconstruction Project’ in order to finance through the ‘Social Fund for IDP Development- SFDI’, micro-projects with social and economic objectives and to provide micro-credits to enhance the economic opportunities o f IDPs.

Category o f projects Rehabilitation o f dormitories, and other ‘temporary’ housing facilities

Rehabilitation of wells and water supply and imgat ion systems

T o date, this second component o f the project, the ‘SFDI Component’, has financed about 190 micro-projects o f an average cost o f about U S D 35,000 for a reported total o f about 160,000 beneficiaries. The distribution o f micro-projects by category o f works i s shown in Table 1, below

number 44 34

Table 1 : Distribution o f SFDI implemented micro-projects by category:

Repair o f sewerage systems Extension o f power distribution networks j ,“,

I Extension o f natural gas distribution systems l 4 Repair and improvement o f local roads

Rehabilitation and equipment o f schools

28

~ 29 I Rehabilitation and equipment o f social facilities I 23

About USD 1.9 mi l l ion in SFDI funds have been used to finance micro-credits through Partner Lending Institutions. These funds are used for about 2,500 active clients. Funding for these micro-credits was channeled to Partner Lending Institutions (PLIs) including both Micro-Finance institutions (MFIs) and Credit Unions (CUs). All five MFIs participating in the project were established as local institutions (Limited Liabi l i ty Companies licensed by the Azerbaijan National bank as non-bank financial institutions) by parent international NGOs that were operating micro-credit programs in Azerbaijan: Azer Credit (World Vision), Finance for Development (Oxfam), FINCA, NorMicro (Norwegian Refugee Council), and Madad (Relief

13

Intemational). In most cases SFDI-financed micro-credit represented only a small part o f their portfolio. The seven CUs also existed prior to their participation in the project (and had been created in 1998/99 under a TACIS program), but in most cases SFDI funding became their primary source of funding. CUs are generally relatively weak institutions, lack adequate management, staff, lending procedures and data recording and are vulnerable to outside pressure.

SFDI resources were passed on to the twelve PLIs under a total o f thirty-eight loan agreements, which had the fol lowing key features: (a) the duration o f the agreement was to be for a period of two years from the date o f signature; (b) SFDI funds were to be disbursed in three successive tranches; (c) no repayment o f the loan principal was due during the two year period; (d) on- lending terms were specific for each PLI reflecting the lending methodologies o f the P L I at the time of the agreement; and (e) 80% at least o f the funding had to be lent to IDPs.

MFIs and CUs took different approaches to lending. M F I s made mostly small short-term loans (average size about USD 275) to individual informal micro-enterprises, and provided access to continuous lending to borrowers with good repayment performances, making a total o f about 6,000 loans to about 1,700 enterprises for a total amount o f about U S D 450,000. CUs in turn made mostly larger and longer-tenn loans (average size about USD 1,900) to about 750 registered small businesses for a total amount o f about U S D 1.3 mil l ion. However, because of the longer te rm o f these loans, CUs were only in a few cases able to make ‘repeater loans’.

According to the data available, about 45% o f al l loans have been extended to women. Impact assessments carried out in Baku by the Norwegian Refugee Council and Oxfam demonstrated that micro-credits had a significant positive impact on I D P micro-enterprises. Enterprises in Baku showed a j o b increase o f 46%, while profits and family consumption grew by 100%. Results in the interior o f the country were similar with revenue growing by 35%, expenditure on food by 30% and expenditure for health and education by 35%.

14

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies


Ongoing or planned operations

1. Agricultural Development and Credit Proiect (Cr. 3236-AZ); SDR 22.2 million; approved 06/08/1999, effective 12/21/1999, expected closing date 03/31/2005.

The objective o f the project is, inter alia, to support a network for financial services in rural areas consisting o f local financial intermediaries such as credit cooperatives and rural branches o f commercial banks to provide private farms and other rural enterprises with market based financial services.

Current PSR rating i s U.

2. Rural Investment Project (AZRP) (Cr. 3912-AZ), SDR 10.2 mil l ion; approved 06/03/2004, effective (expected) 12/2 1/2004.

The objective o f the project i s to improve living standards in rural areas and increase the use o f infrastructure services through the implementation o f micro-projects for economic and social infrastructure.

Current PSR rating: N/A.

3. Agricultural Development and Credit Proiect I1 (under preparation)

4 ADB Mic ro and Rural Finance Proiect (USD 25.0 million)

The project’s objectives are to (a) increase access to financial services in regions, including services for poor households, through sustainable expansion o f MFIs and banks; and (b) establish the legal framework necessary for the sustainability o f micro and rural finance services.

The project i s expected to become effective in 2005.

15

Annex 3: Results Framework and Monitoring


Results Framework

PDO

Improve l iv ing conditions o f IDPs and enhance their economic opportunities and prospects for social integration.

Intermediate Results One per Component

Component One:

Improve the l i v i ng conditions and access to basic services o f IDPs.

Component Two:

Increase the economic opportunities o f IDPs.

Component Three:

IDP/EDS i s implemented efficiently.

Outcome Indicators

Overall satisfaction o f I D P communities.

Results Indicators for Each Component

Component One:

Number o f micro-projects completed

Number o f beneficiaries

Component Two :

Number o f micro-credit loans extended by PLIs.

Number o f active P L I clients. Component Three:

Project implementation progress and financial reporting i s satisfactory and in l ine with agreed schedule.

Auditors issue unqualif ied opinion o n financial statements o f project accounts.

Use of Outcome Information

To help the Azerbaijan Government improve i ts approaches to I D P issues.

U s e of Results Monitoring

Component One:

To check performance o f SFDI and, if necessary, adjust micro-projects selection criteria.

Component Two:

To check performance o f PLIs.

Component Three:

To ver i fy S F D I compliance with its project management responsibilities.

16

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U m

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0 2

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vi * 0 e, ‘7

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m 3 PI

0 0

0 10

8 0 0

0 CCI

8

0

.

Annex 4: Detailed Project Description


A. Micro-projects (USD 10.5 million, IDA 10.2 mi l l ion equivalent)

The component wi l l finance the preparation (including required design and engineering studies) and the implementation (including necessary technical supervision) o f up to about 200 small-scale projects o f rehabilitation, repair or reconstruction, as well as the acquisition o f related equipment for:

(a)

(b) (c)

basic small infrastructure, such as wells, water supply and sewerage networks, electricity distribution networks, access roads, and drainage systems;

social infrastructure such as schools, community centers, etc.; and

temporary shelter facilities, but limited to structural elements (roofs, etc) and common spaces (sanitary and cooking facilities, hallways, etc) and exclusive o f any works inside dwelling units.

To be eligible for SFDI financing al l such micro-projects must be identified and selected by the beneficiary IDP communities themselves and supported by a cash contribution o f 3% of the total cost from these communities as a demonstration o f their commitment. Communities wi l l also contribute labor for site preparation, etc. A large number o f such micro-projects have already been identified under the ‘Pilot Reconstruction Project’ but could not be funded for lack o f resources.

All projects must demonstrate that (a) they represent the least-cost approach to the problems they are meant to address in terms o f both the actual cost o f the investment and the resulting operations and maintenance costs, (b) they are self-standing and do not depend, in order to be operational, on the implementation o f other micro-projects.

Detailed eligibility and evaluation criteria to this effect are defined in the Operations Manual.

B. Micro-Credits (USD 0.5 million, IDA 0.0 equivalent)

The component, which wil l be financed exclusively f rom Government counterpart funding resources, wi l l provide financing to Partner Lending Institutions (PLIs) for the extension o f micro-credits. Use o f SFDI micro-credit resources will be restricted, geographically, to the Greater Baku area (Le. the Absheron Peninsula and the cities o f Baku and Sumgait) in order to avoid any territorial overlap or conflict with the Bank’s existing Agricultural Development and Credit Project (Cr. 3236- AZ) and the proposed ADB Mic ro and Rural Finance Project. For the same reason, IDP/EDS wil l also use the same terms and conditions as for the ADB project:

0

0

10 year repayment period, including 4 year grace period

interest rate equal to average AZM deposit rate, adjusted every 6 months.

18

C. equivalent)

The component wi l l finance the following:

IDP/EDS Implementation Support (USD 1.5 million, IDA USD 1.3 mi l l ion

SFDI operating costs (estimated cost U S D 1.3 million)

The sub-component wi l l finance project-related operating and maintenance costs o f SFDI, including staff salaries and eligible social charges, communications, utilities including electricity, bank charges, printing and publications, office rent, maintenance, repair and supplies, office security systems, vehicle operation, fuel and maintenance, transportation and field trip expenses, insurance for office equipment and vehicles, as well as acquisition o f office, communication and transport equipment.

SFDI staff training (estimated cost USD 100,000)

The sub-component will finance training o f SFDI staffsin procurement, financial management, capacity building related activities (including business travel expenditures) with counterpart organizations and other professional matters, as well as participation in workshops and seminars in Azerbaijan and abroad.

Annual audits (estimated cost USD 80,000)

The sub-component wi l l finance the annual audits o f project accounts and financial statements by independent auditors in accordance with World Bank guidelines.

Micro-project portfolio development (estimated cost U S D 25,000)

The sub-component wil l finance SFDI information campaigns and specific assistance to IDP communities for the preparation o f project proposals.

Social Assessments for monitoring and evaluation (estimated cost USD 50,000)

The sub-component wi l l finance the implementation o f surveys and other social investigations by local consultants to monitor and evaluate project outcomes.

19

Annex 5: Project Costs


SFDI s ta f f training

Portfolio development

Monitoring and evaluation

Annual audits

Total

The costs shown in the table below reflect the new Country Financing Parameters for Azerbaijan adopted in December 2004.

100 100 0

80 64 16

25 25 0

50 50 0

12,575 11,497 1,078

Table 1 : Estimated Project Costs and Indicative Financing Plan (in USD ‘000)

20

Annex 6: Implementation Arrangements


General

IDP/EDS wi l l be implemented over a period o f three years (thirty-six months), commencing in July 2005, the expected time o f effectiveness o f the Credit.

IDP/EDS wi l l continue the implementation arrangements, including existing staff, for the SFDI component of the ongoing project unchanged. IDP-EDS wil l be implemented by the ‘Social Fund for the Development o f IDPs-SFDI’. SFDI was created as an autonomous agency reporting to the cabinet o f ministers for the purpose o f implementing the SFDI component o f the ‘Pilot Reconstruction Project’ by Presidential Decree No . 215 of December 6, 1999. I t i s governed by a Board o f Directors whose members are from the Azerbaijan Government, the donor community, and the non-governmental and private sector. In accordance with the Government Decree No. 151 o f October 15, 2004 the Government i s represented by the Deputy Prime Minister (chair), and representatives o f the Min is t r ies o f Finance, Labor and Social Protection, and the State Committee for IDPs. The International Donor Community i s represented by UNDP, U N C H R and USAID. The non-governmental and private sector i s represented by representatives o f Exxon, the Azerbaijan Forum of Non-Governmental Organizations, and the Azerbaijan Union o f Small and Medium Enterprises.

Originally, SFDI was created as an autonomous agency reporting to the cabinet o f ministers for the sole purpose of implementing the SFDI component o f the ‘Pilot Reconstruction Project’. Subsequently, i t was given the additional responsibilities o f managing the implementation o f IDP projects financed from the Government Oil Fund as well as o f projects financed by Turkey and Greece. However, the management o f the projects financed from the latter sources i s separate from that o f the ongoing Pi lot Reconstruction Project and the proposed IDP-EDS.

The organizational structure and working procedures o f SFDI are defined in an Operations Manual (OM).

Micro-Proi ects

The implementation o f the micro-project component wil l be based on the fol lowing arrangements:

e micro-projects are identified by IDP communities either directly or with assistance from NGOs in response to information campaigns about the project that are undertaken by SFDI through the media and direct contact.

SFDI screens the applications received for their compliance with SFDI eligibility criteria and either accepts or rejects the applications or requests further explanations.

final design and tender documents required for the micro- project.

e

e in the case o f accepted applications, SFDI prepares al l necessary technical studies,

21

0 subsequently, SFDI carries out all procurement, hires contractors, and supervises the work implementation.

upon completion o f the works, SFDI transfers the assets into the ownership o f the IDP community or the relevant local authority, as the case may be.

0

Micro-Credits

Implementation o f the micro-credit component wil l be based on the fol lowing rules:

0 SFDI makes resources available to Partner Lending Institutions (PLIs) through a competitive process using transparent eligibility criteria and a prior assessment o f the financial soundness o f P L I operations.

PLIs will be allowed to extend micro-credits to clients in accordance wi th their o w n credit policies i.e. setting set their own interest rates and selecting clients according to their own criteria.

to those that wil l be offered by ADB (ten year term, including a four-year grace period on principle, at a floating interest rate equivalent to the average AZM deposit rate).

0

0 Credit resources wil l be on lent by SFDI to PLIs on terms and conditions similar

To be eligible for participation in IDP/EDS, PLIs wil l have to satisfy the following conditions:

B e registered with the Azerbaijan National Bank.

Already be lending in the Greater Baku area.

B e able to demonstrate that the percentage o f IDPs in their Greater Baku area portfolio i s at least equal to the percentage o f IDPs in the overall population o f the Greater Baku area.

Provide loans not exceeding USD 5,000, with not more than 90% o f loans exceeding U S D 3,000.

Have at least 1,000 active clients.

Have a sound and transparent credit policy, with loan products that meet the needs of their clients.

Have a functioning MIS that provides financial reports in accordance with international accounting standards and appropriate domestic regulations, and that provides timely reports on total loan portfolio, including the portfolio classification.

Have appropriate loan loss provisioning and write-off policies.

Have a Board o f Directors independent o f management.

Have a management team that possesses the sk i l ls needed for successfully running the institution.

22

e B e able to provide externally audited financial statements for the last two years (2003 and 2004), either as an independent entity or operating within an Intemational NGO.

B e able to provide pro forma financial statements for 3 years that demonstrate increasing financial sustainability and increasing numbers o f IDP and other low- income clients.

With regard to financial criteria, to be determined by an examination o f the 2003 and 2004 audited financial statements, PLIs would have to:

e

e Show a portfolio at risk over 30 days o f less than 5% for the last two years.

the last two years.

Show an equity to risk assets ratio not exceeding 0.2, where equity i s defined as capital grants and retained earnings.

e Show loan losses equal to less than 3% o f the average outstanding portfolio for

e

23

Annex 7: Financial Management and Disbursement Arrangements


I. Project Financial Management

Executive Summary and Conclusion

An assessment o f the adequacy of the project financial management systems o f the Social Fund for Development of IDPs (SFDI) was carried out during project preparation to assure that the systems can provide to the Bank accurate and timely information regarding project resources and expenditures. Such systems include accounting, financial reporting, internal control, staffing and auditing arrangements.

A. Proiect Accounting

Based on the overall assessment o f the adequacy o f the project financial management systems, the existing systems meet minimum requirements for recording transactions and balances, supporting the preparation o f regular and reliable financial statements and safeguarding assets. The existing I C Accounting system i s already producing the required Financial Monitoring Reports for the ongoing ‘Pilot Reconstruction Project ’ and is considered capable o f accounting and financial reporting for the IDP/EDS Project.

B. Country Issues

The Azerbaijan Country Financial Accountability Assessment (CFAA) diagnostic work carried out in 2002 recommended accounting and auditing regulatory and institutional reforms to increase accountability and good governance in the country. Most o f the key C F A A recommendations on legal and regulatory reforms and institutional capacity building are addressed in the proposed three Poverty Reduction Strategy Credits (PRSCs), and the recently approved Institutional Development Fund Grant on Accounting and Auditing Reforms. A new Accounting L a w and related secondary regulation mandating use o f International Financial Reporting Standards (IFRS) for public interest entities and governmental enterprises, and International Public Sector Standards (IPSA) for the public sector has been approved by Parliament. The Accounting Law would assure greater transparency and accountability o f public funds. In parallel, the enactment o f the new Audit Law currently under preparation, and establishment o f regulatory and institutional frameworks for the Chamber o f Accounts, the Country’s Supreme Audit Institution and the Chamber o f Auditors, the audit profession regulator and standard-setter would provide greater transparency and comparability o f financial Reporting.

C. Risk Analysis

Risks associated with the Project’s financial management systems are summarized below, and outlined in a report available in the Project fi les.

24

Description

1. INHERENT RISK

1. Country Financial Management

2. Project Financial ManagemenKounterpart funds 3. Banking Sector 4. Accountabil ity and Governance Overall Inherent Risk

~

2. CONTROL RISK

1. Implementing Entity

2. FundsFlow 3. Staffing

4. Accounting Policies and Procedures

5. Internal Audit 6. Extemal Audit

7. Reporting and Monitor ing

8. Information Systems

Overall Inherent Risk

Risk

High

Moderate

High High

High

L o w

Moderate L o w

Moderate

High Moderate

Moderate

Moderate

Moderate

Comments

Legal and regulatory reforms conducive to increased accountability and efficiency addressed in the ongoing PRSC 1 and proposed PRSC 2 and 3. Overall borrower improvement in providing countemart fundine on timelv basis. Banking Policy reforms under way. PRSC 1 addresses regulatory and institutional reforms on accountabiky and governance.

The PIU has experience in implementing the ongoing Bank-financed Pi lot Reconstruction Proi ect . No issue on counterpart funding. The proposed project wil l be implemented by the existing staff o f the PIU who are already implementing the ongoing Pi lot Restructuring Project . Procedures documented in an Operations Manual. The Updating o f the Financial Management Section o f the existing Manual i s comdeted. There i s n o internal audit function in SFDI. Extemal auditors will be selected under TORS cleared with the Bank. Format and timing o f Quarterly FMRs were

25

D. Strengths and Weaknesses

SFDI has successfully implemented the ongoing 'Pilot Reconstruction Project' financed by the Bank. In addition, i t has managed other intemational donor and Government funds. An additional Accountant wil l be recruited to support the current Chief Accountant.

E. Implementation Arrangements

SFDI will have the overall responsibility for coordination with all donor agencies and implementation of all project activities, project accounting, financial reporting, Credit disbursements, auditing arrangements, procurement activities and project monitoring under the leadership o f the SFDI Director.

F. Staffinn The key staff o f SFDI include: director, financial managerichief accountant, micro- projects appraisal manager, procurement manager, income generation manager, office manager, management information systems manager, promotion and public awareness manager and infrastructure micro-projects implementation manager. In addition, SFDI i s supported by seven support staff including assistants to the financial manager and procurement manager. The accounting staff are experienced in implementing Bank projects, and have received local and intemational training in financial management, disbursements and auditing o f Bank projects. Additional training wil l be provided during the implementation o f the project.

G. F low of Funds

The total project cost o f USD 12.6 mi l l ion will be financed wi th an IDA Credit o f U S D 11.5 million, and counterpart funding o f U S D 1.1 mil l ion. O f the counterpart funding, about USD 0.3 mi l l ion wil l come from cash-contributions from IDP communities. Disbursements o f the IDA Credit to finance works, goods, consultants' services and audit, training and incremental operating costs would be transaction-based as described in Annex 7 o f the PAD.

H.

The SFDI Financial ManageriChief Accountant assisted by an accountanticashier has the overall responsibility for project accounting, financial reporting, disbursements and auditing arrangements. They wil l work closely with the micro-project and micro-credit implementing managers to ensure al l accounting transactions and related documentations are submitted to the chief accountant for processing to ensure consolidated project accounting and reporting. The SFDI staff report to the SFDI Director, who authorizes, assigns and delegates responsibility. The accounting and financial reporting duties are well segregated to assure safeguarding o f assets, accuracy and completeness o f the accounting records, including timely preparation o f financial reports. The accounting and administrative controls are documented in the Operational Manual.

Existing Accounting Structure, Svstems and Controls

26

I. Proposed Accounting Svstem, Financial Reporting and Monitoring

The existing 1 C Accounting software i s already customized to automatically produce the required quarterly Financial Monitoring Reports for the ongoing project. SFDI uses cash basis o f accounting in maintaining and preparing project accounts. Quarterly Financial Monitoring Reports (FMRs) wil l be prepared and submitted to the Bank no later than 45 days after end of each quarter. The FMRs wil l comprise of: (i) Financial Reports; (ii) Project Progress Report; and (iii) Procurement Management Report. These reports will provide information on the progress o f the project in terms o f financial activity, key output measures and procurement for the relevant quarter. The format and reporting requirements were confirmed at negotiations.

J. Auditing Arrangements

External Audit. The Project and SFDI wil l be audited each year by external auditors in accordance to auditing standards and terms o f reference acceptable to the Bank. The audit report would be submitted to the Bank no later than six months after end o f each year audited. The scope o f the audit would include audit o f the project financial statements, and arrangements surrounding use o f the Special Account and the Statements of Expenditure (SOEs), and the audit o f SFDI’s financial statements. The cost o f the audit wil l be eligible for financing under the Credit. The audit arrangements were confirmed at negotiations.

Internal Audit. There i s no internal audit function wi th in the SFDI.

K. Impact o f Procurement Arrangements

Based on diagnostic work carried out under the Country Procurement Assessment Report (CPAR) issued in 2003, the legal framework, enforcement regime and procurement capacity were identified as areas that require strengthening. Azerbaijan has introduced a new Public Procurement Law (PPL) that i s based extensively on the United Nations Commission for International Trade Law (UNCITRAL) model. The PPL has set up a three-tier review system that consists o f an internal administrative review by the State Procurement Agency (SPA) and judicial review. Perception o f the courts’ ability to deal with procurement disputes i s poor, thus jeopardizing the SPA’S level o f confidence and overall transparency in the review process. The SPA has been vested with the procurement regulatory functions and has shown a willingness to ensure compliance with the Public Procurement L a w (PPL).

Procurement risk has been rated high for this project (see Annex 8). Mit igation and capacity building measures include reinforced staffing with the addition to the existing staff o f a new procurement assistant, and the inclusion in the procurement plan of a training program on procurement according to Wor ld Bank guidelines and procedures. Both existing staff and additional procurement staff would benefit from the training program, at an early stage o f project implementation

27

L. Supervision Plan

During pro ject implementation, the financial management staff would: (i) conduct risk based f inancial management assessment to ascertain that: (i) financial accounting and reporting i s adequate; (ii) funds flow arrangements o f the project effectively support the project’s objectives; and (iii) the quarterly FMRs and the annual audit reports (wi th accompanying Management Letters) are submitted on time, and meet legal requirements.

11. Disbursement Arrangements

The table below, wh ich reflects the new Country Financing Parameters adopted in December, sets forth the Categories of items to be financed out o f the proceeds o f the Credit, the allocation of the amounts of the Loan to each Category and the percentage o f expenditures fo r items so to be financed in each Category:

Amount o f the Credit Allocated (Expressed in

Category USD)

Works and Goods 8,905,000

Consultants’ Services including Audit

(a) Audit under Part C 60,000

(b) Other Consultants’ Services 375,000

Training 90,000

Operating Costs 920,000

Unallocated 1,150,000

TOTAL 11,500,000

% o f Expenditures

to be Financed

97%

80%

100%

100%

80%

Disbursements f rom the Credit will be transaction-based to finance eligible expenditures for goods, works, and operating costs based on the standard disbursement percentages pertaining for Azerbaijan. To facilitate t imely project implementation, the borrower wil l establish, maintain, and operate a Special Account denominated in U S dollars, under terms and conditions acceptable to the Bank. The Special Account wil l be held in a commercial bank acceptable to the Bank. Applications fo r replenishment o f the Special Account will be submitted regularly, preferably month ly . The Special Account wi l l have an in i t ia l allocation o f USD 1 mi l l ion. Payments in excess o f 20% o f Special Account m a y be made through direct disbursement f rom the Credit Account. Available Credit disbursement methods include reimbursements with full documentation, reimbursements o n basis o f Statements o f Expenditure (SOEs) for small expenditures w i th in agreed threshold (see Annex 8, Section V) and payments against Special Commitments. Large contracts may be pa id by direct payment f rom the Credit Account.

28

Statement of Expenditures (SOEs). IDA funds wou ld be disbursed under transaction- based procedures including SOEs and direct payments. Supporting documentation for SOEs, inc lud ing completion reports and certificates, wou ld be retained by the Borrower and made available to the Bank during project supervision. All disbursements wou ld be made o n the basis o f full documentation for (a) contracts for works and goods under part A of the pro ject costing more than U S D 200,000 each; and (b) services under contracts of more than the equivalent o f U S D 100,000 for each consulting firm and more than the equivalent o f U S D 50,000 each for individual consultants. Disbursements be low these thresholds, as w e l l as for training and incremental operating costs w o u l d be made according to certif ied Statement o f Expenditure (SOEs). This documentation wou ld be retained by S F D I for at least one year after receipt by the Wor ld Bank o f the audit report for the year in which the last disbursement was made. Disbursements for expenditures above the SOE thresholds wou ld be made against presentation o f full supporting documentation relating to those expenditures.

29

Annex 8: Procurement Arrangements

AZERBAIJAN: IDP ECONOMIC DEVELOPMENT SUPPORT

I. General

Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated M a y 2004; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated M a y 2004, and the provisions stipulated in the Legal Agreement. The general descriptions o f various items under different expenditure categories are described below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan wil l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

A. Procurement of Works: Works procured under this project would include: at least one contract procured under N C B procedures (total amount USD 200,000 equivalent), and up to about 200 contracts for micro-projects (estimated to cost about USD 50,000 equivalent per contract) procured under Shopping procedure based on three written quotations. The procurement wi l l be done using E C A Regional Sample Bidding Documents for National Competitive Bidding o f Works.

B. Procurement o f Goods: Goods procured under this project would include equipment for communities under micro-projects (for example equipment for schools, hardware, etc.). Equipment for SFDI (information technology goods and ready-made software, furniture, vehicles, etc.) would also be procured. The procurement wil l be done using (a) National Standard Bidding Documents agreed with the Bank for NCB, and (b) Shopping o f goods under the specific threshold for this method.

C. may also be procured under the project.

Procurement o f non-consulting services: Survey services and mapping services

D. Selection o f Consultants: Consultants’ services would include D e s i g n Services for the micro-projects, undertaken by firms, wi th in packages o f ten micro-projects per contract as an average (Selection based on the Consultant’s Qualifications), supervision services, and audit services awarded under Least Cost Selection procedure. Social Assessments (One Selection under Fixed Budget and one based on the Consultant’s Qualifications) would also be included. Supervision would be awarded to individual consultants according to the selection procedures described in section V o f the guidelines. Short lists o f consultants for services estimated to cost less than U S D 100,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 of the Consultant Guidelines. NGOs having experience o f similar projects in the region may be selected, as well as United Nations Agencies and Training Institutions, such as the ILO (Turin Center) for training in procurement and financial management.

30

E. SFDI Operating Costs: Operating costs which would be financed by the project would be procured using SFDI’s administrative procedures which have been reviewed and found acceptable to the Bank.

11. Assessment of SFDI capacity to implement procurement

All procurement activities wil l be carried out by SFDI. SFDI’s Procurement unit is staffed by one procurement officer who has experience with the ‘Pilot Reconstruction Project’. The Bank has recommended to reinforce this unit with the addition o f a procurement assistant, and to train these two staff members in procurement according to the Bank’s procedures at the beginning o f implementation. Standard Bidding Documents for each procurement method, as well as model contracts for works and goods, are included in the Operations Manual.

An assessment o f the capacity o f SFDI to implement procurement actions for the project was carried out by Salim Benouniche on November 3, 2004. The assessment reviewed the organizational structure for implementing the project and how sampled procurement procedures under the previous similar project (not subject to prior review) were conducted by the project’s staff member responsible for procurement.

Most o f the issues/r isks concerning the procurement component for implementation o f the project have been identified. These r i sks include the fact that only one SFDI staff member has experience in procurement according to the Bank’s procedures. To mitigate this risk, i t has been agreed that a procurement assistant wil l be hired and training for both staff members wi l l be carried out. The overall project risk for procurement i s rated high.

111. Procurement Plan

SFDI, at appraisal, developed a Procurement Plan for the first eighteen months o f project implementation which provides the basis for the procurement methods. This plan has been agreed between the SFDI and the Project Team on January 6, 2005 and i s available at SFDI’s offices (5th floor, # 65 Fizul i Street, Baku, Azerbaijan). I t wil l also be available in the Project’s database and in the Bank’s external website. The Procurement Plan wil l be updated in consultation wi th the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

IV. Frequency of Procurement Supervision

In addition to the prior-review supervision to be carried out from Bank offices, the capacity assessment o f SFDI has recommended two supervision missions per year the first year, which could be reduced later to one per year, to visit the field to carry out post review of procurement actions.

31

V. Thresholds for Procurement Methods

A. Procurement o f Works.

C iv i l works estimated to cost less than USD 300,000 equivalent per contract may be procured using National Competitive Bidding procedures (NCB) using the Bank’s E C A Regional Sample Bidding Documents for Procurement o f Works (NCB). M ino r Works contracts estimated to cost each less than USD 100,000 equivalent may be procured using three quotations under the Shopping procedure (S).

B. Procurement o f Goods.

Shopping (S) wil l be used for Goods estimated to cost less than U S D 100,000 equivalent per contract.

Contracts for the supply o f goods estimated to cost more than USD 100,000 wil l be procured under ICB.

C. Procurement o f Consulting Services.

Services for surveys, design and studies, training or similar activities may be procured based on qualifications o f consultants (CQS) for estimated contract value o f less than USD 200,000 equivalent. Audit services wil l be procured using the Least Cost Selection method (LCS). A Single Source Selection ((SSS), o f I.L.O., Torino’s training facility of the International Labor Organization) i s foreseen for the provision o f training services in procurement and financial management estimated to cost the equivalent o f U S D 35,000. Social Assessments may be procured using the Fixed Budget Selection method (FBS). The short l i s t may comprise entirely national consultants i f the estimated cost o f the assignment i s below USD 100,000. Contracting o f consulting f i r m s estimated to cost more than U S D 200,000 equivalent would be carried out normally under the Quality and Cost-Based Selection method (QCBS) in accordance with the Bank Guidelines

VI. Suggested Thresholds for Prior Review

Thresholds for prior review are shown as an additional table in the procurement plan for the starting year o f implementation, and may be revised after one year o f implementation.

Thresholds for prior review are set as follows for the f i rs t year:

A. as set forth in paragraphs 2 and 3 o f Appendix 1 to the Guidelines:

Goods and Works. The fol lowing contracts are subject to the Bank’s prior review

(a) al l I C B contracts; (b) (c)

all contracts estimated to cost the equivalent o f U S D 200,000 or more; and the first two contracts procured under N C B (regardless o f contract value), and Shopping or M ino r Works.

B. Consultina Services. With respect to consulting services, prior Bank review wil l be required for al l terms o f reference for consultants. Contracts for services estimated to

32

cost the equivalent o f USD 100,000 or more for f i r m s and USD 50,000 or more for individuals, and the first t w o contracts under CQS, FBS and LCS are subject to Bank’s pr ior review as set forth in paragraphs 2 and 3 o f Appendix 1 to the Guidelines.

All other contracts are subject to post review, in a ratio o f one contract in five, except for micro-project contracts, wh ich are subject to post review in a rat io o f one contract in twenty.

33

d m

m m * - A Y i

2l i; $ - n

n ? -4

n

m Q

0

3

m P 0 M I

% e e e i!

2 E

M .- M e n

P n P

5 75

I :t .- E & .- Y

Annex 9: Economic and Financial Analysis


An a pr io r i economic analysis i s not practical due to the social fund nature o f IDP/EDS not i s a pr ior estimation o f the net present value or the economic internal rate o f re tum for the whole project. This i s because a l l micro-projects wil l be identif ied o n an on-going basis over the lifetime of the project and m a y vary considerably in their specific objectives and technical nature.

Approval o f micro-projects by SFDI wil l be based o n criteria that wi l l ascertain that the proposed investments:

are technically sound and represent a least-cost alternative to the problems to be addressed;

are self-standing and do not depend, in order to be operational, o n the allocation and implementation o f other micro-projects; and

are supported by a financial contribution o f 3% o f the project cost f rom the beneficiary communi ty as well as a contribution o f labor for s i te preparation, etc.

0

35

Annex 10: Safeguard Policy Issues


Involuntarv Resettlement (World Bank OP 4.12): IDP/EDS wil l not trigger OPiBP 4.12 as the project wil l deal exclusively with rehabilitation/repair/upgrading o f existing infrastructure and installations on existing premises or new routes on public rights o f way which wil l not entail any land acquisition, relocation o f population, or restrictions on access to resources.

Intemational Waterways (World Bank OP 7.50): IDP/EDS may inter alia, finance micro- projects (o f an average cost of about US$45,000) to upgrade, replace, and/or repair water supply and sewerage installations in buildings or neighborhoods occupied by small IDP communities that could result in marginally increasing water abstraction from, or waste water discharges to, transboundary rivers as defined by OP 7.50. However, the project qualifies for an exception from noti fying the governments of riparian countries, as the proposed activities wi l l neither attempt to modi fy the course o f waterways, nor significantly increase the volume o f water abstraction, thus affecting the water rights o f other riparians, nor have a detectable impact on the Caspian Sea. Procedures laid out in a Project Operations Manual wil l be used to ensure that investment proposals developed during the implementation o f the proposed project wi l l be properly screened for applicable World Bank safeguard. SFDI wil l approach Bank for additional guidance on what actions as per OP 7.50 are applicable to any particular investment that could raise this issue.

Environmental Assessment (World Bank OP 4.01): The project triggers environmental operational pol icy 4.01 and has been assigned environmental category FI, as i t i s a social-fund type project without predetermination of specific micro-projects. The fol lowing measures have been or wi l l be taken to mitigate possible problems:

(a) The studies or assessments that have been, or aye proposed to be, carried out to help identifi, minimize and address safeguards-related ' impacts. The organizations that prepared and w i l l prepare the studies should be listed.

An environmental review procedure for screening and assessing environmental impacts of micro-projects as well as developing mitigation plans will be developed as part of the Operational Manual. Environmental assessments will be carried out by SFDI for specific micro-projects and/or project sites as appropriate. SFDI staff wil l include a qualified environmental specialist to oversee compliance with the EMP.

Any safeguards-related risks, perceived or substantive, and measures taken or proposed to be taken to address the risks.

IDP/EDS i s not expected to have any significant or irreversible environmental impacts, and i s classified as Environmental Category "FI". M a n y o f the micro-projects are expected to produce environmental benefits. However, because these projects are not pre-identified, there could be unforeseen environmental impacts during implementation.

(b)

36

The alternatives considered to minimize adverse safeguards-related impacts of the proposed project.

Alternatives to specific micro-projects wi l l be considered and assessed during micro- project preparation and appraisal, as per guidelines provided in the OM.

Consultations with, and participation oJ various affected groups and other stakeholders in the project preparation process, and a description of how the results of these consultations are reflected in project design and implementation.

Consultations with stakeholders regarding environmental impacts and other aspects o f the micro-project wi l l take place as part o f the micro-project identification and preparation process, which is described in the OM.

The safeguards-related impacts identified, including a description of any long term and/or cumulative impacts of the proposed project and related developments in the area.

Safeguards-related impacts of micro-projects wi l l be identified during the micro-project identification and preparation process. N o long-term or cumulative negative environmental impacts are anticipated.

The plan@) to avoid, minimize and mitigate the potential adverse impacts, prepared in accordance with the provisions of the respective safeguard policies triggered.

The OM section dealing with environmental management includes a framework for assessing and mitigating the minor impacts that could occur in specific micro-projects.

The assessment of the capacity and commitment of the institutions responsible for implementing and monitoring the agreed plans. Description ofproposals, If any, to build the capacity of institutions involved in implementation and monitoring of the plans.

SFDI i s responsible for screening the micro-projects for environmental impact, defining mitigation measures, and preparing terms o f reference to manage impacts as part o f the works contracts awarded by SFDI to contractors. Institutional capacity has already been established in SFDI through i t s management o f the Pilot Reconstruction Project.

Arrangements for funding and a schedule of implementation of the plans.

Environmental management wil l be provided by SFDI through i t s staff, funded by the IDA credit over the l i f e o f IDP-EDS. Implementation o f specific mitigation measures at the micro-project leve l wi l l be funded as part o f micro-project contract and implemented by the firm selected to perform the works.

References to the mitigation plan in the project legal agreement, including appropriate covenants and conditionalities.

SFDI shall implement the project consistent with the OM. N o specific environmental covenants or conditionalities are needed.

Mechanisms to monitor the implementation of the agreed plans.

Environmental monitoring i s to be done by SFDI as part o f regular micro-project implementation monitoring.

Arrangements, including staffing and resources, for supewising the implementation of the agreed plans.

37

The Bank supervision team wil l include environmental specialists to supervise implementation o f environmental management under IDP-EDS. The environmental staff wil l be drawn f rom other project teams work ing in Azerbaijan, and/or the Country Of f ice local environmental specialist staff. Resources are budgeted at one staff/week per year.

38

Annex 11 : Project Preparation and Supervision


Planned Actual PCN review 812 712004 812 712004 Init ial P I D to PIC 911 412004 Initial I S D S to PIC 10/8/2004 Appraisal 12/06/2004 12/02/2004 Negotiations 12/13/2004 1/5/2005 BoardRVP approval 2/15/2005 Planned date o f effectiveness 7/01/2005 Planned date o f mid-term review Planned closing date 1213 112008

Key institutions responsible for preparation o f the project:

0 Azerbaijan Republic Social Fund for Development o f IDPs (SFDI), Baku, Azerbaijan

Bank staff and consultants who worked on the project included:

Name Title Unit Ellen Hamilton Urban Planner ECSIE Farid A.Mamedov Ida N. Muhoho Salim Benouniche Junk0 Funahashi Maninder S. Gill Ann Duval Amy Evans Felix A. Jakob S. Chai Ting Andrina Ambrose-Gardiner Delphine Hamilton

Operations Officer Financial Management Specialist Sr. Procurement Specialist Sr. Counsel Lead Sociologist Micro-Finance Consultant Environment Consultant Infrastructure Consultant Lead Financial Management Specialist Sr. Finance Officer Program Assistant

Bank funds expended to date on project preparation: 1. Bank resources: $95,000 2. Trust funds: $0 3. Total: $95,000

ECSIE ECSPS ECSPS LEGEC ESDQC ECSIE ECSSD ECSIE ECSPS LOAGl ECSIE

Estimated Approval and Supervision costs: 1. Remaining costs to approval: $40,000 2. Estimated annual supervision cost: $100,000

39

Annex 12: Documents in the Project File


1.

2.

3.

Presidential Decree No. 2 15 (6 December 1999) establishing SFDI.

Decree No. 15 1 (1 5 October 2004) naming S F D U Supervisory Board members

Micro-credit reports (Ann Duval) (July 2004 and October 2004 missions).

4. IDPs in Baku: A Qualitative Approach, Asen Balikci, University o f Montreal (Canada), 2004 (report prepared for Wor ld Bank).

5. Ef for ts to Resolve the Problems o f Refugees and IDPS, Maninder Gill, November 2003.

40

Annex 13: Statement o f Loans and Credits


Original Amount in US% Millions

Difference between expected and actual

disbursements

PO76234

PO49892

PO70989

PO08286

PO66100

PO70973

PO69293

PO4071 6

PO08284

PO35770

PO35813

PO58969

PO55155

PO08288

Project ID F Y Purpose IBRD I D A SF GEF Cancel. Undisb. Orig. F r m Rev’d

2004 RURAL INVSMT (AZRIP) 0.00 15.00 0.00 0.00 0.00 14.96 0.05 0.00

2004

2003

2003

2002

2001

2001

2001

2000

1999

1999

1999

1998

1995

PENSION & SOC ASST 0.00 10.00 0.00 0.00 0.00 9.98 0.67 0.00 E D SECT DEV (APL #1) 0.00 18.00 0.00 0.00 0.00 19.05 -0.77 0.00 IRRIG DIST SYS & M G M T IMPROVMT 0.00 35.00 0.00 0.00 0.00 37.07 1.04 0.00

IBTA 2 0.00 9.45 0.00 0.00 0.00 9.11 1.73 0.00

FIN SCT TA 0.00 5.40 0.00 0.00 0.00 2.67 -3.55 0.00

HEALTH REF LIL 0.00 5.00 0.00 0.00 0.00 1.99 -3.68 0.00

HIGHWAY 0.00 40.00 0.00 0.00 0.00 36.24 20.85 0.00 IRRIG/DRAINAGE REHAB 0.00 42.00 0.00 0.00 0.00 26.37 15.31 0.00 PILOT RECON 0.00 20.00 0.00 0.00 0.00 3.69 -7.75 0.89 AGRIC DEVT & CREDIT 0.00 30.00 0.00 0.00 0.00 8.77 7.59 -1.62 CULT HERITAGE PRSV 0.00 7.50 0.00 0.00 0.00 2.09 1.69 -0.72 URG ENV INVST 0.00 20.00 0.00 0.00 0.00 5.73 4.56 4.78

B A K U WS 0.00 61.00 0.00 0.00 0.00 10.46 4.34 4.32

Total: 0.00 318.35 0.00 0.00 0.00 188.18 42.08 7.65

AZERBAIJAN STATEMENT OF IFC’s

Held and Disbursed Portfolio In Mil l ions o f U S Dollars

F Y Approval Company

Committed Disbursed

IFC IFC

Loan Equity Quasi Partic. Loan Equity Quasi Partic

2004

1998104

2003

2004

1998

1999

2002

2003

2004

2004

Amerada Hess ..

Azerb. JV Bank Azerigazbank

BP Corp N A

Baku Coca Cola

Baku Hotel

MFB Azerbaijan

Rabitabank

Statoil Unocal - Unio ...

1.68

0.00

1.20

10.00

1.17

7.29

0.00

1.20

8.75

10.00

0.00

0.40

0.00

0.00

0.00

0.00

1.75

0.00

0.00

0.00

0.00 1.68

0.00 0.00

0.00 0.00

0.00 10.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 8.75

0.00 10.00

1.68

0.00 1.04

10.00

1.17

7.29

0.00 0.77

2.50

10.00

0.00

0.40

0.00

0.00

0.00

0.00

1.75

0.00

0.00 0.00

0.00 1.68

0.00 0.00

0.00 0.00

0.00 10.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 2.50

0.00 10.00

Total portfolio: 41.29 2.15 0.00 30.43 34.45 2.15 0.00 24.18

41

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

2001 Azer JV Increase 0.00 0.00 0.00 0.00

Total pending commitment: 0.00 0.00 0.00 0.00

42

Annex 14: Country at a Glance


P O V E R T Y a n d S O C I A L

2003 Azerba i jan

8.2 820 6.7

Po pulatio n , m id-year (millions) GNI per capita (Atlas mefhod, US$) GNI (Atlas method, US$ billions)

Average annua l g r o w t h , 1997-03

Population (%) 0.8 Laborforce (%) 18

M o s t r e c e n t e s t i m a t e ( l a t e s t year available, 1997-03)

Poverty (% ofpopulation belo wnationalpovertyline) 50 Urban population (%o f totalpopulation) 50 Life expectancyat birth (years) 65 Infant mortality (per 1000live births) 76

78 Child malnutrition (%ofchildren under5) 77 Access to an improvedwatersource (%ofpopulation)

Gross primaryenroiiment (%of school-age population) 93 Illiteracy (% o f population age 159

Male 93 Female 92

KEY E C O N O M I C R A T I O S and LONG-TERM T R E N D S

1983 1993

GDP (US$ billions) 4.0 Gross domestic investmentlGDP .. 218 Exports o f goods andserviceslGDP .. 57.4

Gross national savingslGDP .. 4.9

Current account baiancelGDP Interest paymentsiGDP 0.0 Total debtlGDP 0.9 Total debt servicelexports Present value of debtlGDP Present value of debtlexports

Gross domestic savingslGDP 3.2

1983-93 1993-03 2002 (average annual growth)

GDP percapita .. 3.9 9.7 GDP .. 4.9 13.6

Europe & Lower - C e n t r a l m idd le -

A s i a i n c o m e

473 2,570 12 77

0.0 0.2

63 69 31

91 3

133 134 n2

2002

6.2 32.1

42.8 24.7 8 . 6

-t2.3 0.4

23.1 5.5 17.8

38.6

2,655 1,480

3,934

0.9 1.2

50 69 32

11 81 0

I t2 113 111

2003

7.1 49.1 42.8 25.1 20.8

-28.3 0.3 B .9 5.4

2003 2003-07

112 6 . 2 x) .4 9.8

Deve lopment d iamond*

Life expectancy

I

GN I Gross primary

nroilment

Access to improved water source

---.-A zerbauan

Lo wer-m iddle-inc o m e group 1 -

E c o n o m i c ra t ios '

I Trade

Investment Domestic ~ savings

Indebtedness

1 --Azerba,jan

~ Lower-middle-income oroun

STRUCTURE o f the E C O N O M Y

(%of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and Services

Manufacturing

(average annualgrowth) Agriculture industry

Services

Private consumption General government consumption Gross domestic investment Imports ofgoodsandservices

Manufacturing

1983 1993

.. 28.5

.. 33.8

.. 29.0

.. 37.7

.. 66.2

.. 30.1

.. 76.0

1983-93 1993-03

3.4 8.4

.. 18.6

8.4 8.8

.. 35.0

.. 8.0

2002

5.0 50.2 18.8

34.8

62.9 P.4

50.0

2002

6.4 28.6

2.5

8.6 3.1

84.2 48.4

2003

14.3 54.5 23.3 311

63.2 11.7

66.8

2003

5.6 18.1

6.9

77.3 6.6

7 1.2 43.5

r G m o f i n v e s t m e n t a n d G D P ( O h ) -1 (100 -

50

0

O3 I 98 99 00 01 02 -50 -

----GDI -GDP - -

I Growth o f expor ts and i m p o r t s (%) -

60

I .40

---Exports -lmOrts

43

Azerbaijan P R I C E S a n d G O V E R N M E N T F I N A N C E

D o m e s t i c p r i c e s (% change) Consumer prices Implicit GDP deflator

1983

G o v e r n m e n t f i n a n c e (%o f GDP. includes current grants) Current revenue Current budget balance Overall surplusideficit

T R A D E

(US$ miilionsj Total exports (fob)

Crude oil Petroleum products Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (895=X)O) Import price index (895=WO) Terms o f trade (895=MO)

B A L A N C E o f P A Y M E N T S

(US$ millions) Exports o f goods and Services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

M e m o : Reserves including gold (US$ millions) Conversion rate (DEC, iocal/US%)

1983

1983

E X T E R N A L D E B T a n d R E S O U R C E FLOWS

(US$ millions) Total debt outstanding and disbursed

1983

IB RD IDA

Total debt service IB RD ID A

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments

1993

lP9.0 747.6

1993

1993

39.5

1993

36 0 0

0 0 0

0 0 0

0 0 0

2002

2.8 3.2

27.3 5.2

-0.5

2002

2,305 1614 432 153

1,823 238 336 513

t?8 80 161

2002

2,667 3,t?1 -454

-386 70

-769

990 -22 1

721 4.860.8

2 0 0 2

1,443 0

314

159 0 2

18

-50 m5

69 57

0

2003

2.2 4.0

27.5 4.4 -1.2

2003

2,625 1,836 402 279

2,723 238 1,89 5 8

257 85 8 6

2003

3,055 4,768 - 1,7 t?

-442 0 4

-2,021

2,257 -237

803 4,911.2

2003

1,48 0

388

7 6 0 4

20 0 9 -39

53 75

1

I n f l a t i o n ("0)

15

---GDP ddlat or -CPI - I E x p o r t a n d i m p o r t l e v e l s (US$ m i l l . )

3000 T

I

I

2 000

1000

97 98 99 00 01 02 03

I Exports e Imports

C u r r e n t a c c o u n t b a l a n c e t o GDP (%)

-40 -

1 C o m p o s i t i o n of 2003 d e b t (US$ mi l l . ]

F: 150

I E 519

I

D' 136

A - IBRD E - Bilateral B - IDA D - Other rmltilateral F - Private C- IMF G - Short-term

44

MAP SECTION

45

of The World Bank FOR OFFICIAL USE ONLY · 2016. 7. 17. · document of the world bank for official...

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Transcript of of The World Bank FOR OFFICIAL USE ONLY · 2016. 7. 17. · document of the world bank for official...