Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 41435 November 2009

Proposed Loan and Asian Development Fund Grant and Administration of Grants and Loan: Kingdom of Cambodia: Tonle Sap Poverty Reduction and Smallholder Development Project

CURRENCY EQUIVALENTS (as of 5 November 2009)

Currency Unit – Cambodian riel (KR)

KR1.00 = $0.000240

$1.00 = KR4,162.00

ABBREVIATIONS

ADB – Asian Development Bank CARD – Council for Agriculture and Rural Development CIP – commune investment program DCU – development coordination unit FGIA – first generation imprest account GDP – gross domestic product ICT – information and communication technology IFAD – International Fund for Agricultural Development LIG – livelihood improvement group MAFF – Ministry of Agriculture, Forestry and Fisheries M&E – monitoring and evaluation MEF – Ministry of Economy and Finance MFI – microfinance institution MOWRAM – Ministry of Water Resources and Meteorology NCDDS – National Committee for Sub-National Democratic Development

Secretariat NIDA – National Information Communications Technology Development

Authority NGO – nongovernment organization RDB – Rural Development Bank SEDP – Socioeconomic Development Plan SGIA – second generation imprest account TA – technical assistance t/ha – tons per hectare TSI – Tonle Sap initiative UNDP – United Nations Development Programme UXO – unexploded ordnance

NOTES

(i) The fiscal year (FY) of the Government of Cambodia and its agencies ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 31 December 2009.

(ii) In this report, "$" refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director C. Wensley, Officer-in-Charge, Agriculture, Environment, and Natural

Resources, SERD Team leader I. Makin, Senior Water Resources Management Specialist, SERD Team members B. Giap, Rural Development Economist, SERD Y. Hirao, Financial Control Specialist, Controller's Department N. Ikemoto, Natural Resources Management Specialist, SERD M. Oka, Budget and Management Services Specialist, Budget,

Personnel, and Management Systems Department P. Robertson, Senior Project Management Specialist, Central

Operations Services Office C. Salter, Rural Development Specialist, SERD S. Zaidansyah, Counsel, Office of the General Counsel

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

LOAN AND PROJECT SUMMARY i

I. THE PROPOSAL 1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2

III. THE PROPOSED PROJECT 8 A. Impact and Outcome 8 B. Outputs 8 C. Special Features 12 D. Project Investment Plan 12 E. Financing Plan 13 F. Implementation Arrangements 14

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 18 A. Benefits and Impacts 18 B. Social Aspects 19 C. Environmental Aspects 20 D. Risks and Mitigations 20

V. ASSURANCES AND CONDITIONS 21

VI. RECOMMENDATION 23

APPENDIXES

1. Design and Monitoring Framework 24 2. Sector Analysis 27 3. External Assistance in the Tonle Sap Region 33 4 Detailed Cost Estimates 37 5. Implementation Arrangements 39 6. Project Implementation Schedule 44 7. Procurement Plan 47 8. Economic Analyses 52 9. Summary Poverty Reduction and Social Strategy 58

SUPPLEMENTARY APPENDIXES (available upon request)

A. Agro-Socioeconomic Assessment Study B. Program for Improvement of Access to Rural Finance C. Commune and Subproject Selection Criteria D. Development of Access to Rural Information and Communication Technology E. Gender Action Plan F. Detailed Cost Estimates G. Terms of Reference of Development Coordination Unit Staff H. Terms of Reference of Provincial, District, and Commune Support Staff I. Summary Consulting Service Schedule J. Consulting Services – Outline Terms of Reference K. Economic Analyses L. Procedural Guidelines for Confirming Resettlement Impact M. Initial Environment Examination N. Environment Assessment and Review Framework O. Good Governance Framework

LOAN, GRANT AND PROJECT SUMMARY Borrower Kingdom of Cambodia Classification

Targeted intervention—Geographic Targeting Classification: Sector: Agriculture and natural resources (agriculture and rural sector development, microfinance, information and communication technology) Themes (subthemes): Economic growth (widening access to markets and economic opportunities; knowledge, science, and technological capacities); social development (other vulnerable groups); capacity development (institutional development) Climate change: Climate change adaptation Location impact: Rural (high impact) Partnerships: International Fund for Agricultural Development (IFAD), Government of Finland

Environment Assessment

Category B. An initial environmental examination was undertaken and an environmental assessment and review framework was prepared.

Project Description The Tonle Sap Poverty Reduction and Smallholder Development

Project will foster community-driven development through investments in productivity improvement, rural infrastructure, and capacity development in 196 communes in the provinces of Banteay Meanchey, Kampong Cham, Kampong Thom, and Siem Reap. The Project will assist the Government in creating (i) rural infrastructure to improve agricultural production, market access, and quality of life in rural communities; (ii) stronger rural financial services extended to resource-poor smallholder farmers; (iii) better agricultural support services, including research, extension, and information delivery services to support increased agricultural productivity by smallholder farmers; (iv) appropriate policies and regulations that support smallholder farming communities; and (v) effective project management that enables timely completion of the project and achievement of project objectives.

Rationale Cambodia has achieved gross domestic product growth of 8%–

10% a year since 2001, driven largely by an expansion of the construction, garment, and tourism sectors. Agricultural growth has fluctuated because of variations in the performance of the crop sector, especially rice. However, the Government of Cambodia and its development partners are deeply concerned about (i) the narrow base of economic growth, currently threatened by the global economic crisis; and (ii) the persistence of high levels of rural poverty, coupled with the growing income disparity between rural and urban areas. The headcount poverty index of 52.40% for Kampong Thom, 51.84% for Siem Reap, 37.15% for Banteay Meanchey, and

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37.04% for Kampong Cham can be compared with the national rural poverty level of 39.7%. A recent Asian Development Bank (ADB) study of 20 communes, in six representative agroecological regions in four provinces, found that 15 communes had poverty levels exceeding 60%, two were between 50% and 60%, and two were between 30% and 50%. Only one had poverty a level below 30%.

Opportunities for sustainable rural economic growth based on increasing the productivity of resource-poor smallholders were examined. These studies confirmed the need for investment in agricultural productivity improvement, rural infrastructure, and capacity building. The focus should be on commune-led activities to support smallholder production, and key institutional reforms to enable faster agricultural growth. The proposed investments would be in line with ADB's Strategy 2020, the country strategy and program for Cambodia, and the road map for agriculture and natural resources for Cambodia. The investments would also support the International Fund for Agriculture and Development (IFAD) country strategy for Cambodia, and the Government’s Rectangular Strategy II.

ADB’s assistance to Cambodia, especially for agricultural policy development and finance sector reform, has established the base for faster economic growth. Rural roads have strengthened market links and improved mobility; irrigation schemes have created access to water sources to increase agricultural production; and water supply and sanitation works have contributed to better health. With three ongoing projects and supporting technical assistance (TA), the Tonle Sap Initiative is creating assets, infrastructure, and institutional capacity locally, while protecting the environment and natural resources of the Tonle Sap basin. The recently completed commune council buildings are centers for local authorities to better organize and implement service deliveries to communities.

To accelerate development and deepen the impact of the past investment and TA projects, additional support to strengthen community-driven development and to enhance household production, income, and access to technology, markets, and credit will be essential. The provision of rural finance will be essential to remove barriers that restrict supply and constrain access to credit by poor households. The segmented nature of the rural credit market, and the absence of properly functioning markets in the segments where the targeted beneficiaries are expected to operate, justifies improving access to rural finance. The Project will support (i) productivity improvement and household income diversification with better risk management; (ii) easier market access with biosecurity and information and communication technology; (iii) institutional strengthening to improve governance and effective service delivery; and (iv) greater access to affordable finance.

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Impact and Outcome The impact of the Project will be to improve the livelihoods of

approximately 630,000 households in four provinces in the Tonle Sap basin by 2020. The Project's outcome will be an increase in agricultural productivity and improve access to markets in 156 communes in four provinces in the Tonle Sap basin.

Project Investment Plan The Project is estimated to cost $55.30 million, including taxes

and duties of $4.75 million. Financing Plan ADB will provide $30.70 million, comprising a loan in special

drawing rights equivalent to $3.40 million and a grant not exceeding the equivalent of $27.30 million, both from its Special Funds resources. ADB support will finance 55.5% of the project costs. IFAD will provide $13.38 million, comprising a loan in special drawing rights not exceeding the equivalent of $6.69 million and a grant in special drawing rights not exceeding the equivalent of $6.69 million on a joint cofinancing basis. IFAD support will finance 24.2% of the project costs. The Government of Finland will provide a grant in euros not exceeding the equivalent of $5.75 million to finance 10.4% of the project costs, on a cofinancing basis. ADB will administer the cofinancing from the IFAD and the Government of Finland. The Government of Cambodia will contribute $5.47 million to finance recurrent and investment costs, and taxes and duties, accounting for 9.9% of the project costs. The ADB loan portion will have a maturity of 32 years with a grace period of 8 years, and an annual interest rate of 1% during the grace period and 1.5% thereafter. The Government of Cambodia will bear the foreign exchange risk. Interest charges on the loan are to be capitalized.

Item

Total($ million)

(%)

Asian Development Bank 30.70 55.5 Loan 3.40 6.1 Grant 27.30 49.4

International Fund for Agricultural Development 13.38 24.2 Loan 6.69 12.1 Grant 6.69 12.1

Government of Finland 5.75 10.4 Government of Cambodia 5.47 9.9

Total 55.30 100.0 Source: Asian Development Bank estimates.

Period of Utilization 1 March 2010 to 28 February 2017 Estimated Project Completion Date

31 August 2017

Executing Agency Ministry of Agriculture, Forestry and Fisheries (MAFF)

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Implementation Arrangements

The MAFF will execute the Project and will be an implementing agency. The Project will be managed by the MAFF development coordination unit (DCU) housed in the secretary general’s office. The DCU will have the following roles and responsibilities: (i) undertake consolidated planning, budgeting and reporting functions; (ii) open and maintain project accounts; (iii) prepare, in a timely fashion, the necessary withdrawal applications for submission to MEF, and onward to ADB and IFAD, for reimbursement, based on the financial statements and requests from the implementing agencies, in accordance with ADB's Loan Disbursement Handbook (2007, as amended from time to time); (iv) procure goods and consulting services in cooperation with the implementing agencies following procedures acceptable to the ADB; (v) appoint independent auditors, acceptable to the ADB; (vi) establish, within 6 months of the effective date, a monitoring and evaluation system (including conducting the base line, midterm and project completion reviews); (vii) review and consolidate the project annual work plan and budget prepared by the implementing agencies; (viii) consolidate the progress and financial reports prepared by the implementing agencies; (ix) disseminate project reports to ADB, IFAD and other stakeholders; (x) assist and advise the implementing agencies and the participating provinces on project implementation; and (xi) provide secretariat support to the project steering committee.

The Council for Agriculture and Rural Development (CARD) will undertake the functions of the project steering committee and as part of its regular functions. CARD will consider project matters quarterly to (i) provide policy guidance; (ii) review project progress; and (iii) resolve policy issues related to the Project. CARD may receive inputs from the Supreme National Economic Council on policies and regulations that support smallholder farming communities.

The Project will have three implementing agencies: (i) MAFF for agricultural policy development; (ii) the National Committee for Sub-National Democratic Development Secretariat (NCDDS) for commune development activities, including small-scale rural infrastructure development; and (iii) the National Information Communications Technology Development Authority for rural information and communication technology investment activities. In the four provinces, commune councils and the provincial and district administrations will participate in the implementation of the Project. The Organic Law, 2009 has been enacted, the provincial and district councils have been elected, and the associated administrative arrangements related to the provinces and districts are being developed. Consequently, the Project’s implementation arrangements will require adjustment from time to time to facilitate harmonization with the Government's regulatory framework for decentralization and deconcentration. Initially, project

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implementation at the subnational level, including at the commune level, will follow NCDDS systems and operating procedures, including the provisions of the NCDDS decentralization and deconcentration finance and administration manual (2009, as amended from time to time).

Procurement Prior- and post-review thresholds were discussed and agreed upon with the MAFF and are included in the procurement plan. International procurement is not envisaged under the Project. Commune-level procurement will follow procedures in the NCDDS Commune/Sangkat Fund project implementation manual acceptable to the project financiers. All other goods, works, and services financed by the Project will be procured in accordance with ADB's Procurement Guidelines (2007, as amended from time to time).

Consulting Services The Project will require 592 person-months of consulting services,

including 76 person-months from international consultants and 516 person-months from national consultants, for project management and expert services. A summary of the consulting service schedule is in Supplementary Appendix I. The outline terms of reference for consultants is in Supplementary Appendix J. Recruitment of the majority of consulting services will be through a firm following the quality- and cost-based selection process, using an 70:30 quality–cost ratio. Four person-months of international consulting services and 84 person-months of national consulting services are envisaged independent consultants for special studies. The Project will finance the appointment of 432 person-months of national advisors for implementation of the project at provincial and district administrations. The recruitment of international and national advisors will follow government procedures, acceptable to ADB (main text, footnote 37), to promote maximum alignment of project staffing and procedures with government structures and procedures. Except for the national advisors, recruitment of all consulting services will be in accordance with ADB's Guidelines on the Use of Consultants (2007, as amended from time to time).

Project Benefits and Beneficiaries

The Project will cover four provinces in the Tonle Sap basin: Banteay Meanchey Kampong Cham, Kampong Thom, and Siem Reap. It is expected to benefit about 630,000 households (or about 2.5 million people) in 196 communes in these four provinces through investments, training and capacity building, and livelihood field demonstrations and follow-ups. The majority of households in the project communes involved in agricultural production have less than 3.0 hectares of usable agricultural land. Those with 1.0 hectares or less are considered resource-poor smallholders, and they are the focus of the Project.

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Direct project benefits will include (i) incremental gains from higher yields and productivity of

crops and other agricultural products through the adoption of appropriate inputs, such as high-quality seeds, appropriately managed land, fertilizers, water, better crop management, and improved extension services;

(ii) higher gross margins from improved market access and crop diversification; and higher market prices with reduced risk of food poisoning, particularly in the production of livestock, aquaculture, and vegetables resulting from better post-harvest phyto-sanitary management;

(iii) greater access to formal rural financial services for smallholders involved in livelihood improvement groups, which will gain knowledge and graduate to being rated creditworthy; and

(iv) better incremental asset accumulation through more alternative livelihood opportunities and risk diversification, higher gross margins from increased productivity, and greater access to markets and affordable finance.

In the long run, smallholders will benefit from improved knowledge of household economics, and stronger market consciousness and entrepreneurial mindsets. Additional benefits from better infrastructure, such as rural roads, markets, village-level storage, on-farm irrigation, and water supply and sanitation, will accrue to the communities. The infrastructure will help improve productivity, strengthen market links, reduce the risk of waterborne diseases, and improve product quality after harvest. Costs and time savings from an improvement in rural water supply and sanitation will be significant as the majority of the selected communes do not have adequate access to safe water and appropriate sanitation. Improved knowledge through capacity building, practical training, demonstration activities, and production practices will provide the foundation for smallholders to raise their living standards. The Project will make substantial contributions to reducing rural poverty in the selected provinces. This will help ease pressures to migrate from rural areas to urban centers such as Phnom Penh and Siem Reap.

The Project will also contribute significantly to ensuring food security and to easing poverty of wage labor by increasing the availability of rural jobs. This will reduce the social and financial costs of migration to other provinces in search of work.

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In addition, the Project will assist the Government in policy and institutional reform, including drafting key laws and regulations. The Project will also strengthen the capacity of stakeholders in implementing decentralization and deconcentration policies in agriculture and rural development. The economic internal rates of return were calculated for four sample subprojects considered representative of the whole Project. The results indicate an economic internal rate of return of 44%–55% and benefit–cost ratios of 1.5–1.6. The robustness of these results was established by sensitivity analyses with respect to an increase in capital and recurrent costs, an implementation delay, and potential input- and output-related risks that would reduce the project benefits.

Risks and Assumptions The Government's commitment to faster agricultural growth may

diminish in the face of other development priorities over the project implementation period. ADB will monitor the enabling environment during project implementation and assist the Government in addressing priority policy and institutional reforms to support smallholder farming systems. The Project's alignment with the Government's decentralization and deconcentration reforms will improve governance and reduce corruption. The Project assumes this process will continue to support empowerment of subnational government units. Commune councils are responsible for implementation of commune development investments. The Project will strengthen the capacity of provincial and district administrations of line agencies to perform their support functions effectively. Underperforming commune councils will undermine implementation and outcomes.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed loan, (ii) a proposed grant, (iii) proposed administration of a loan and a grant to be provided by the International Fund for Agricultural Development (IFAD), and (iv) proposed administration of a grant to be provided by the Government of Finland, all to the Kingdom of Cambodia for the Tonle Sap Poverty Reduction and Smallholder Development Project. The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. Macroeconomic trend. For the decade up to 2008, Cambodia's economy grew steadily and significantly, driven largely by the construction, garment, and tourism sectors. Gross domestic product (GDP) grew at annual rates between 8.0% (2001) and 10.2% (2007). Annual growth rates for agriculture fluctuated between –2.5% and 15.0%. Such fluctuations, especially in paddy production, affect household food security. The slowdown in garment exports and tourist arrivals because of weaker external demand, the appreciation of the riel against the dollar, and a high rate of inflation led the International Monetary Fund to reduce GDP growth projections to 6.50% in 2008 and –2.75% for 2009.1 Rapid inflation caused by rising food and energy prices in early 2008 eased in 2009. The annual inflation rate dropped from a high of more than 25% in mid-2008 to 13% in early 2009. In January 2009, Cambodian garment exports were about 60% lower than in January 2008. More than 50,000 garment workers had lost their jobs by January 2009, with similar losses in supporting services.2 3. Rural burden of poverty and food insecurity. Despite economic growth that had been robust until recently, the Government and its development partners are concerned about the persistent high levels of rural poverty and the growing income disparity between rural and urban areas. About 80% of the estimated population of 13.4 million in 2008 lived in rural areas. The 2004 data indicated that the poverty rate in rural areas (39.7%) was almost double that in urban areas (20.9%). Data gathered during project preparation showed that 30%–40% of rural households are poor and the rate for remote communities living around Tonle Sap is much higher. 3 Reducing rural poverty and enhancing food security are core policy goals of the Government of Cambodia. The Tonle Sap Initiative (TSI) is designed to assist the Government in managing the natural resources of the Tonle Sap to reduce poverty in the area while conserving resources. Key actions to achieve these goals are (i) accelerating and spreading the benefits of growth in the agriculture and rural sectors, (ii) strengthening weak institutions, (iii) resolving irrigation problems, (iv) reducing farmers' vulnerability to risks, (v) linking national highways to the hinterland, (vi) improving public and private sector efficiency, and (vii) ensuring the preservation of the country's natural resource base. 4. Volatility in global food prices. Almost a third of rural households suffer from some form of food insecurity each year during the wet season (July to November) when alternative

1 International Monetary Fund. 2009. Press statement at the conclusion of the 2009 Article IV discussions with

Cambodia. Washington, D.C. (23 September). 2 NGO Forum on Cambodia. 2009 Statement on the monitoring of Cambodia Development Cooperation Forum

(CDCF) indicators. Phnom Penh (April). 3 A study of 20 communes representing six agroecological regions in the four project provinces found that the

poverty level exceeded 60% in 15 communes, was between 50% and 60% in two communes, and exceeded 33% in two communes. More details are in Supplementary Appendix A .

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jobs are limited.4 The surge in global food prices in early 2008 combined with energy price increases and an economic slowdown worsened poverty. More than 50% of households reportedly suffered from food insecurity in 2008.5 Even communes producing a surplus of paddy have large pockets of hunger. This situation reflects inadequate production by smallholders, low employment and income of households, the sale of crops at low prices immediately after harvest to repay debts, limited access to affordable credit, and a lack of storage and processing facilities. This undermines the country's ability to capture the value of the rice along the market chain. 5. Narrow base of growth and pressure on natural resources. The narrow economic base, the uncertainty surrounding agriculture sector performance, and the global economic environment have put the country's recent impressive growth at risk. The financial crisis may exacerbate an already high rural poverty rate, putting additional pressure on natural resources. B. Analysis of Key Problems and Opportunities

6. About 85% of Cambodians depend on agriculture and non-timber forest extraction for a major part of their livelihoods, although these activities account for only about one-third of GDP. Opportunities in other sectors, while promising, are inadequate to absorb the 250,000 new entrants to the job market each year. The opportunities to improve the productivity and sustainability of activities in the rural sector are significant. With Cambodia at a crossroads, a major effort is needed to focus on agriculture as the main driver of broad-based and pro-poor growth. While food security and better nutrition continue to be core sector development goals, a move toward commercialization is required to create economic opportunities and enable the sector—especially small-scale farmers—to become a bigger part of the economy. Value chain analyses indicate that large gains in agricultural productivity can be made through post-harvest storage, processing, and marketing. Numerous obstacles make the transition from low-level subsistence agriculture difficult. During extensive consultations with stakeholders—government ministries and agencies, other external development agencies, nongovernment organizations (NGOs), and community-based organizations6—a consensus emerged on the main problems and opportunities.

1. Constraints to Poverty Reduction and Smallholder Development

7. Low factor productivity. One of the main causes of poverty in the Tonle Sap basin is the inefficient use of land, water, labor, and capital, which results in low factor productivity. Cambodia's paddy yield per hectare is one of the lowest in Asia (Appendix 2). Total crop production has grown, and average paddy yields for Cambodia, Lao People's Democratic Republic, Thailand, and Viet Nam have increased from 1.4 tons per hectare (t/ha) in 1961 to 3.4 t/ha in 2007. However, Cambodia has continued to fall behind the regional average, with the gap increasing from 0.3 t/ha in 1961 to about 1.0 t/ha in 2007.7 Factor productivity is low in terms of labor (about $170 per worker) and in terms of land ($518 per ha). Five issues are linked to low factor productivity: (i) poor management of land (particularly soil fertility), water

4 Murshid, K.A.S. 2005. Food Security in an Asian Transitional Economy: The Cambodian Experience. Phnom

Penh: Cambodia Resource Development Institute. 5 Asian Development Bank (ADB). 2008. Report and Recommendation of the President to the Board of Directors on

a Proposed Loan and Asian Development Fund Grant to the Kingdom of Cambodia for the Emergency Food Assistance Project. Manila.

6 ADB. 2007. Technical Assistance to the Kingdom of Cambodia for Preparing the Tonle Sap Poverty Reduction and Smallholder Development Project. Manila,

7 Food and Agriculture Organization. 2008, FAOSTAT database (www.faostat.org accessed 22 September 2008).

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resources (including on-farm water management), and inputs (including chemical fertilizers); (ii) lack of, or inadequate access to, technology, research, and extension services; (iii) shortage and poor quality of seeds and inputs; (iv) lack of access to capital by smallholders; and (v) inadequate public investment in social and physical infrastructure. 8 Prospects for raising productivity are further constrained by (i) poor health, nutrition, and sanitation conditions in communities; (ii) poor farmer organization; and (iii) inadequate attention to gender development and empowerment. The following activities present an immediate opportunity to boost productivity: increase the availability of seed of high-quality rice varieties, rehabilitate small water control schemes, improve crop storage facilities, and provide training in the safe use of inputs. 8. Lack of access to markets and information. Despite receiving substantial external assistance (Appendix 3), the rural road network is still poor, resulting in high transport costs and restricted access to markets. Improving access to production factors and inputs, as well as to markets and market information (especially for smallholders), is a key to turning agriculture into the driving force of pro-poor growth. Weak links between producers and markets undermine government efforts to encourage more commercialized and diversified smallholder agriculture. Farmers lack information on the opportunities available and the associated technologies, markets, and prices. The Agriculture Sector Development Project 9 assisted the Ministry of Agriculture, Forestry and Fisheries (MAFF) in improving traditional extension delivery services to about 56,000 farmers in selected provinces, in addition to promoting nontraditional outreach through broadcast media. Information and communication technology (ICT) offers new opportunities to improve access to information for farmers and the rural population. Investment in ICT infrastructure and training through a public–private–community partnership in rural e-development will help strengthen market links and promote the diversification and commercialization of Cambodian agriculture, building on a pilot application of these technologies.10 The Project will promote more private sector participation in the provision of technical services, infrastructure building, application of ICT for rural development, training and skill development, marketing, and rural finance. 9. Inadequate storage and processing capacities for producers and traders, poor quality packaging and labeling, and inadequate transport and market infrastructure constrain access of smallholder products to domestic and international markets. Post-harvest losses in Cambodia are typically 15%–20% in weight and 10%–30% in value in the market.11 The International Rice Research Institute has demonstrated that losses can be significantly reduced and income from rice harvests increased if farmers and processors use better post-harvest management technologies, such as mechanized harvesters, crop dryers, hermetic storage systems, and improved milling practices. Up-to-date market information will enable farmers to gain more from their production.

8 Agrifood Consulting International and CamConsult. 2006. Diagnostic Study, Phase 1 of Design, Agricultural

Program, Cambodia, 2007–12. Program concept document final report prepared for the Australian Agency for International Development.

9 ADB. 2003. Report and Recommendation of the President to the Board of Directors on Proposed Loans and Technical Assistance Grant to the Kingdom of Cambodia for the Agriculture Sector Development Program. Manila. Loan 2022 for SDR17.485 million was a program loan, and Loan 2023 for SDR3.287 million was a project loan. They were approved on 26 November.

10 ADB. 2009. Technical Assistance to the Kingdom of Cambodia for Tonle Sap Technology Demonstrations and Productivity Enhancement. Manila (TA 7035-CAM for $3.65 million, approved 10 June, cofinanced by the Government of Finland and the Republic of Korea e-Asia and Knowledge Partnership Fund).

11 International Rice Research Institute. 2008. Participatory Impact Pathway and Project Planning Workshop Siem Reap, Cambodia. 15–19 December (funded by ADB through Japan Fund for Poverty Reduction JFPR 9036: Improving Poor Farmers’ Livelihoods through Improved Rice Postharvest Technology).

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10. Weak rural financial services. Capacity building and training can prepare individuals and groups to adopt new on-farm and off-farm enterprises. However, without access to appropriate financial services, the rural poor are unable to act on opportunities that can increase household income. With numerous microfinance institutions (MFIs) operating in the Tonle Sap area, it is unnecessary to set up a new financial organization12 to provide financial services (including savings; credits for micro, small, and medium-sized borrowers; remittances; and money transfers). Many MFIs tend to specialize in restricted areas in a few provinces, so outreach is limited in more remote rural regions. This results in poor delivery of financial services, and unrealized potential in agriculture and the rural economy. An agro-socioeconomic study (Supplementary Appendix A) financed by the Asian Development Bank (ADB) found that the main sources of credit are moneylenders (14.2%), relatives and/or friends (11.0%), and MFIs (7.5%). While lending by MFIs has expanded rapidly in recent years, access to and use of these formal financial services remains limited in rural areas. Difficulty in accessing formal credit providers and high interest rates13 charged by informal lenders constrain the use of more advanced farming techniques, new markets, and business opportunities (Supplementary Appendix B). These constraints need to be addressed by (i) supporting community-based credit institutions, (ii) delivering services to community-based institutions, (iii) increasing the outreach capacity of lending institutions, and (iv) improving borrower training and capacity. 11. Need to deepen policy reforms and strengthening institutions. Since the 1990s, ADB has supported policy and institutional reforms in agriculture (footnote 9), water resources,14 and finance. 15 The Government has strengthened significantly the policy environment for agriculture with the approval of legislation and institutional reforms necessary to accelerate agricultural growth and poverty reduction. The immediate priorities are to further the policy initiatives initiated in relation to Agriculture Sector Development Program (footnote 9) including (i) the adoption of sub-decrees and supporting regulations for the Seed Law, 16 (ii) the development of policies to promote good agricultural practices, and (iii) the development of sub-decrees for farmer associations based on the Royal Decree. 12. Unexploded ordnance. Although the regime of Pol Pot ended in 1979, armed conflict and the placing of mines continued in parts of Cambodia until 1997. According to the Mine/Unexploded Ordnance (UXO) Victim Information System, the four project provinces are among the 10 provinces most affected by land mines and explosive remnants of war. Therefore, all development projects must be cognizant of the threats, and provide mechanisms to deal with UXO in affected communities. The number of casualties nationally and in the four provinces has declined significantly in recent years. However, appropriate management and mitigation measures must be included in projects.

12 Commercial banks and licensed MFIs are expanding their branch networks in provincial and district centers,

making access less difficult for rural communities. 13 Interest rates of 5.10 to 7.33% per month are charged by money lenders and traders – source: Agri-business

Institute of Cambodia. 2008. Draft Report – Special Agro-socio-economic Study. Phnom Penh. 14 ADB. 2000. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Kingdom of Cambodia for the Stung Chinit Irrigation and Rural Infrastructure Project. Manila (Loan 1753-CAM, approved 5 September, for $16.0 million); ADB. 2003. Report and Recommendation of the President to the Board of Directors on Proposed Loan to the Kingdom of Cambodia for the Northwest Irrigation Sector. Manila (Loan 2035-CAM, approved 9 December, for $18.0 million).

15 ADB. 2004. Technical Assistance to the Kingdom of Cambodia for Strengthening National Program Budgeting for the Agriculture Sector. Manila (TA 4428-CAM, approved 8 November, for $250,000).

16 Royal Government of Cambodia. 2008. Law on Managing Seed and Hybrid Plant Authorization. Phnom Penh (approved on 8 April).

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2. The Government’s Response

13. Improvements in agriculture and rural development have been prioritized in the Government's development plans—the Socioeconomic Development Plan (SEDP), 1996–2000; the SEDP II, 2001–2005; the Strategy for Agriculture and Water, 2006–2010; the National Poverty Reduction Strategy; and the 2004 Rectangular Strategy for Growth, Employment, Equity, and Efficiency. The first growth priority of the Rectangular Strategy was agriculture productivity, diversification, and competitiveness with the complementary priority of the rehabilitation and construction of physical infrastructure (including rural roads and water resources infrastructure). The Rectangular Strategy II (2008) highlights the Government’s resolve to strengthen the management of natural resources as the base for food security and to promote poverty reduction.17 The National Strategic Development Plan, 2006–2010 emphasizes improvements in agriculture as the key to poverty reduction. The main elements of the approach are intensifying crop production to increase yields and rural incomes, diversifying crop production, improving fisheries management, ensuring the sustainable management of forestry and conservation of the natural environment, and providing secure land tenure for the poor. Since 2002, the commune councils have had an important role in building small-scale rural infrastructure, such as rural roads, small market places, village drinking water and sanitation facilities, minor irrigation structures, schools, and health buildings. Under the ongoing decentralization and deconcentration reforms, commune councils are using Government funds and development partners earmarked funds for investment in activities that will improve the livelihoods of the local population. The Government continues to emphasize the need to expand the availability of rural credit, enhance access to rural credit, and reduce interest rates.

3. ADB’s Sector Objectives and Strategies

14. ADB’s sector strategy,18 which is consistent with national strategies and other external assistance, focuses on (i) improving farmers’ ability to raise productivity, diversify toward higher-value products, and connect to markets; (ii) improving the market environment for private agriculture-based enterprise growth; and (iii) strengthening institutional capacity for competitive agricultural commercialization. The TSI and the associated Tonle Sap Basin Strategy19 form a core element of ADB's sector strategy. The TSI is an integrated program of technical assistance (TA) and investments to overcome binding constraints on poverty reduction, while protecting vital ecosystem services in the basin. It also gives a geographical focus to ADB’s country operations and business plan for Cambodia, 2008–2010.20 The TSI is a 15-year program that supports (i) capacity development for environmental protection and development management; (ii) strengthening of environmental protection by the Government, line agencies, and people living in the basin; and (iii) investments in infrastructure to open new opportunities that bring sustainable and inclusive growth to some of the poorest communities of one of the poorest countries in the region.21 15. The country strategy and program midterm review identified the need for a sharper focus on agricultural and rural development, private-sector-led growth, and intensified risk

17 Royal Government of Cambodia. 25 September, 2008. Political Platform of the Royal Government of Cambodia of

the Fourth Legislature of the National Assembly. Phnom Penh. 18 ADB. 2005. Country Strategy and Program (2005–2009): Kingdom of Cambodia. Manila. 19 ADB. 2006. From Strategy to Practice: The Tonle Sap Initiative. Manila. 20 ADB. 2008. Country Operations Business Plan (2008–2010): Cambodia. Manila (October). 21 United Nations Development Programme (UNDP). 2008. Human Development Report. http://hdrstats.undp.org/en/countries/country_fact_sheets/cty_fs_KHM.html (accessed 29 October 2009).

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management.22 These refinements are consistent with the Government’s reform priorities as elaborated in the Rectangular Strategy and implemented through the National Strategic Development Plan, 2006–2010. Agriculture remains a source of productivity improvement, seasonal employment, and income growth, especially when connected to urban, industrial, and export markets. Therefore, support for agriculture and rural development is an underlying component of the inclusive growth strategy. ADB's Strategy 2020 23 directs its support for agriculture and rural development to be provided mainly through infrastructure for rural transport, irrigation and water systems, and microfinance.

4. Other Development Partner Assistance

16. Several development agencies are providing external assistance to the agriculture sector (Appendix 3). The World Bank’s involvement in agriculture and rural development has been closely linked to building the capacity of MAFF through its agricultural productivity improvement project (in cooperation with the IFAD). The World Bank, with additional funding from German development cooperation through GTZ and the Government of Finland, is also helping Cambodia to improve land management and land tenure security through land titling. The European Union has facilitated rural development in six provinces around Phnom Penh through rice seed improvement, irrigation development, microfinance, and rural infrastructure development. In cooperation with local NGOs, it is engaged in small-scale food security projects. In 2005, the European Union began a multi-component program in northwestern Cambodia and provided a grant to the livestock subsector. The Australian Agency for International Development supports building the capacity at MAFF’s Department of Agricultural Extension and the Cambodia Agricultural Research and Development Institute, and is also engaged in improving rice seed quality and post-harvest handling of rice through its agricultural quality improvement project. 17. Since 1996, the IFAD has provided $48.59 million in grants and loans for five projects in partnership with other development agencies.24 The IFAD country strategy for Cambodia, 2008–2012 has two strategic objectives: (i) sustainable livelihood opportunities for poor rural men and women in the project areas through better access to assets and productive rural services, rural infrastructure, and markets; and (ii) the promotion of pro-poor decentralization, deconcentration, and local governance for agricultural and rural development through institutional support and evidenced-based policy making. IFAD has assisted the rural poor to improve agricultural productivity, increase off-farm incomes, and provide small-scale rural infrastructure using a common interest group approach. The IFAD has followed systems, structures, and procedures for project planning, financing, and implementation that are in line with those of the Government and other development agencies in nine provinces, including Banteay Meanchey, Kampong Thom, and Siem Reap. The IFAD supports improving agricultural productivity through microfinance and extension services in northwestern Cambodia.

5. Lessons Identified

18. The experience of ADB, IFAD, and other development partner projects around the Tonle Sap Lake underscores the need to complement investments with sustained capacity development interventions aligned with the Government's decentralization and deconcentration

22 ADB. 2007. Country Strategy and Program Midterm Review (2005-2009): Cambodia. Manila. 23 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020.

Manila. 24 These include the Australian Agency for International Development, GTZ, UNDP, the World Bank, and the World

Food Programme.

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reforms (Appendix 2). The institutional arrangements to manage the provision of services to the people by each level of government are evolving as new regulations, systems, and procedures are introduced. To ensure alignment and harmonization, the Project will support strengthening these evolving structures, including their administrative and financial management systems and procedures in provinces, districts, and communes consistent with the Organic Law, 2009. The Project draws on lessons from the ADB TSI25 and IFAD projects in Cambodia, including the following:

(i) Service delivery. Better delivery of rural services, including agricultural and social services, is needed to reduce rural poverty. This will include decentralizing the provision of services by public and private providers, and improving their responsiveness to the priorities of farmers based on market demands. The private sector providers of agricultural extension services, including village animal health workers and village extension workers, can be effective in transferring technology, disseminating information, and linking villagers and their products with markets. In general, the formal banking sector in Cambodia has not provided the financial services that the poor need (para. 10), but group revolving funds26 have been able to do so. Therefore, mechanisms need to be developed to expand group revolving funds and link participants to the formal rural financial services sector.

(ii) Identification of service providers. The Tonle Sap Sustainable Livelihoods Project

(footnote 25) has piloted the mobilization of service providers, including NGOs and the private sector, to accelerate community-based development. Some commune councils have had difficulty finding enough service providers to provide technical and financial proposals for commune-led activities because of inadequate dissemination of information about project activities. Use of the media and workshops to publicize the projects service requirements and future opportunities is being tested.

(iii) Social mobilization and empowerment. Social mobilization and empowerment are keys to the effective participation of the poor in economic development. Empowerment of the poor, through village-based organizations and farmers’ associations, is the basis for ensuring the impact and sustainability of rural poverty-reduction initiatives.

(iv) Capacity of subnational implementation teams. The level of understanding of commune livelihood fund procedures for the Tonle Sap Sustainable Livelihoods Project varies between commune teams. The understanding of the guidelines, required technical expertise, and performance also vary. Effective subnational implementation requires (i) developing clear terms of reference to define the roles and responsibilities of project staff, (ii) matching technical expertise with the project

25 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Kingdom of Cambodia for the Tonle Sap Environmental Management Project. Manila; ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Tonle Sap Sustainable Livelihoods Project. Manila; ADB. 2007. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Tonle Sap Lowlands Rural Development Project. Manila; ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Tonle Sap Water Supply and Sanitation Sector Project. Manila.

26 The group revolving fund (GRF) is a source of money managed by a community group from which loans are made to individuals for development projects. For this project the initial loans will be in the form of agricultural inputs with repayments in cash to form the GRF. Subsequent loans from the GRF will be individual cash loans to members of the group.

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requirements, (iii) improving the quality and impact of training, and (iv) cross-learning between projects.

(v) Project design and implementation. Community-based development projects need to be flexible and able to adapt to changes during project implementation, as the policy and institutional framework for decentralization and deconcentration evolves under the new Organic Law.

(vi) Investments in rural infrastructure. Including irrigation schemes and rural roads,

rural infrastructure projects in Cambodia carry a high risk of poor performance and premature failure. This risk arises largely from weak capacities in the Ministry of Water Resources and Meteorology, Ministry of Rural Development, and the commune councils to develop and manage these productive assets. Effective quality control at all stages is essential.

III. THE PROPOSED PROJECT

A. Impact and Outcome

19. The impact of the Project will be to improve the livelihoods of approximately 630,000 households in four provinces (Banteay Meanchey, Kampong Cham, Kampong Thom, and Siem Reap)27 in the Tonle Sap basin by 2020. 20. The outcome of the Project will be increased agricultural productivity and improved access to markets in 196 communes in 28 districts of four provinces in the Tonle Sap basin. This will be the result of better rural infrastructure, improved agricultural support and rural financial services, greater diversification of household economic activities, and the creation of on- and off-farm livelihood opportunities. The Project communes, identified in accordance with the selection criteria (Supplementary Appendix C), are less developed, but have potential for growth and diversification. 21. The Project will assist communities in establishing livelihood improvement strategies for resource-poor28 farming households with assets that give them the potential to increase their farm-based income by scaling up interventions developed and tested through earlier TSI investments (footnote 25). The Project benefits will be founded on higher productivity and diversified crop production by helping communities to adopt integrated rice-based farming systems. The Project is designed to trigger broad-based development with direct participation of beneficiaries in planning and executing growth and poverty-reduction initiatives and by strengthening agricultural support services for use by the beneficiaries at the commune and district levels. The Project will finance eligible investments in physical assets and capacity development activities that the commune councils have included in their development plans and related annual investment plans. B. Outputs

22. The Project will assist the Government in (i) developing rural infrastructure to support

27 The Government requested the project preparatory TA to focus on the four provinces north of the Tonle Sap Lake

as these have generally received less assistance than the provinces south of the lake 28 Households in the project communes involved in agricultural production with less than 1.0 hectare of usable

agricultural land are considered resource-poor smallholders. Project communes are selected on the basis of poverty score in commune database, agricultural potential, and excluding urban communes.

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agricultural productivity, market access, and improvements in the quality of life in rural communities; (ii) strengthening rural financial services for resource-poor smallholder farmers; (iii) improving agricultural support services, including research, extension, and information delivery services to support higher agricultural productivity by smallholder farmers; (iv) developing appropriate policies and regulations to support smallholder farming communities; and (v) implementing effective project management that enables project completion on time and within the agreed budget. The first three outputs make up the commune development component.

1. Commune Development Component

a. Improving Rural Infrastructure Supporting Agricultural Productivity

23. The Project will fund the development and upgrading of rural infrastructure to support higher agricultural productivity with the investments determined by the commune investment plans (CIPs). Investments are likely in small-scale farmer-managed water works, including tertiary irrigation distribution systems and flood control and drainage works; structures to protect and conserve natural resources in and around the project communities; construction and rehabilitation of farm-to-market roads; commune markets; rice storage and drying facilities.29 24. Project funds for commune investments will be incremental to normal Commune/Sangkat Fund. The communes can use project funds in conjunction with Commune/Sangkat funds or other sources of funds to finance rural infrastructure investment consistent with the subproject selection criteria (Supplementary Appendix C). Over the 5 years of project support, the commune councils can allocate 50%30 of their project allocation for investment in rural infrastructure. A minimum of 10% of infrastructure investment costs must be allocated for maintenance of infrastructure, including that financed by the Project. ADB and Government will assess how the local authorities will provide adequate finance for maintenance of infrastructure financed by the Project and others, e.g., Commune/Sangkat Fund, including the role of community-based organizations in road maintenance.

b. Improving Access to Rural Financial Services

25. The Project will increase the availability of rural financial services through four activities:

(i) provision of technical assistance to the Livelihood Improvement Groups31 (LIGs) to establish and manage the group revolving funds. The Project will assist livelihood improvement groups (LIGs) to establish group revolving funds managed by a committee of members. At the end of the first production cycle, LIG members will repay the value of the inputs to the group to establish a group revolving fund from which group members can subsequently borrow to finance future activities. Members will also contribute savings to the fund. The principles of community participation and transparency will be followed to decide matters such as interest rates paid by the members borrowing from the funds. The LIG approach has been shown to be a viable mechanism to enable the poor to build

29 Prior approval by ADB is required for any investment: (i) for irrigation pumps and engines; (ii) already started but

which remains unfinished due to design or construction defects; and (ii) supported by ADB through other projects. 30 The allocation from year to year may vary depending on priorities and capacity of commune. Over the period of

support to the commune, the allocation for infrastructure should aggregate to no more than 50%. 31 IFAD and UNDP Cambodia. December 2006. UNDP/IFAD Joint Review on Group Revolving Funds. Phnom Penh.

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up assets and subsequently to access funds from formal rural credit organizations.

(ii) enhancing the outreach and institutional capacity of rural financial institutions.The Project will engage the MFI officers in capacity building and training programs for the project beneficiaries.

(iii) support the provision of training for Project beneficiaries to become creditworthy for financial services by microfinance institutions. The Project will finance the costs of training LIGs members in their chosen activities.

(iv) facilitating the participation of selected microfinance institutions in provision of rural financial services, following the MFIs standard business practices, to cover the non-LIG households and groups in the project area villages.

26. The Project will help the MFIs bring affordable and sustainable microfinance to poor households and groups for farm production and livelihood activities, including trade, processing, storage, and marketing (Supplementary Appendix B).

c. Increasing Agricultural Productivity and Diversification

27. To increase agricultural productivity in the selected communes, the Project will strengthen the capacities of the commune, district and provincial service delivery institutions and agencies for farm-based research and demonstrations consistent with the subproject selection criteria (Supplementary Appendix C) through four activities:

(i) provision of training and extension services to enable resource poor farmers adopt integrated rice based farming systems, generate off-farm income and improve access to markets. The district agricultural office will assess the potential for productivity improvements in the target communes. Project staff will provide support using agro-ecosystems analysis and technology improvement packages developed by the Department of Agricultural Extension;

(ii) financing of agricultural and livelihood development activities identified in the CIPs. The Project will support investments to improve agricultural productivity, including land management and development (with UXO clearance where required); client-oriented farm-based adaptive research, including climate change adaptation measures; improved quality and supply of agricultural inputs, tools, and equipment; access to demand-driven extension services; better post-harvest management; and market information;

(iii) establishment and operation of the LIGs; and (iv) promotion of the participation of LIG members in the agricultural value chain.

Upgrading post-harvest management to reduce losses and improve processing, particularly in village rice mills, and marketing will involve funding new support services, capacity development, and equipment.32

d. Increasing Access to Agricultural Information and Market Data

28. The Project will provide support to increase access to agricultural information and data through four activities:

(i) development of relevant agricultural information and market data for dissemination through improved rural ICT services. Enhancing the availability of

32 ADB. 2003. Proposed Grant Assistance for Improving Poor Farmers' Livelihoods through Postharvest Technology.

Manila.

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information, building on the agricultural information services developed through the Agriculture Sector Development Program (footnote 9) and operated by the MAFF, will help resource-poor households, LIGs, and women’s groups engage in income-generating activities;

(ii) establishment and operation of e-kiosks and support services in 80 district or Commune centers. The e-kiosks are expected to be open to local schools, businesses, and other members of the community to access the internet (Supplementary Appendix D); Internet kiosk development will start in the second year of the Project to allow the experience and lessons from the implementation of ICT capacity development TA (footnote 10) to be incorporated.

(iii) selection and training of e-development leaders; and (iv) provision of ICT training for community representatives.

29. The Project will provide support nationally and subnationally to assist the development of agriculture-focused ICT resources, content, and capabilities within the National Information Communications Technology Development Authority (NIDA) and the MAFF, including scaling up successful approaches to rural ICT models piloted by other projects. The e-kiosks will provide rural communes with access to agriculture-related information and resources, facilitate communications with potential suppliers or buyers, and enhance other communication and information identification options.33 The Project will promote a range of ICT-based activities to increase the value of and demand for ICT-based resources in the participating communes.

2. Improving Agricultural Policy Environment Component

30. The Project will continue the assistance ADB, IFAD, and other external agencies have provided to support the development of key policies and associated regulations that can increase agricultural productivity by smallholder farmers through several activities. The first is the development of policies related to good agricultural practices (GAP), including the development of national production guidelines for smallholders, development of appropriate regulations for contract farming by smallholders, and their testing on a pilot basis. The second is the preparation of the sub-decree on formation and operation of farmer associations and the related guidelines. The third area involves carrying out policy-related studies on the selection of crop seeds and the use of hybrid seeds as well as policy-related studies on the use and regulation of genetically modified organisms.

3. Effective Project Management Component

31. Support for project management will include (i) strengthening the capacity of the executing and implementing agencies, and local government councils and their administrations, by supporting a limited number of incremental technical staff at selected offices; (ii) providing national and international consulting services; (iii) providing office equipment; and (iv) providing vehicles for supervision (four-wheel drive vehicles and motorcycles). Project support will also include capacity building at the commune, district, province, and national levels, including specific actions on capacity building on gender issues and special studies.34 The Project will

33 For example, the MAFF website (www.maff.gov.kh) provides information on laws, regulations, agriculture statistics,

and other news. The Department of Planning and Statistics' Agricultural Marketing Office hosts www.camis-kh.org to disseminate market price and agriculture-related information for farmers, and instructions on accessing market-related information via short message service on mobile phones.

34 Special studies will be contracted, in agreement with ADB, to advise the project agencies on solutions to implementation problems, e.g., problems in agricultural production, water resources management, infrastructure, and accessing new supply-chain opportunities.

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finance intensive training of project staff in financial management, cash flow management, and disbursement procedures.35 The Project will also assist in establishing a poverty targeting and project performance monitoring system. This system will include report preparation, dissemination of project information, and the establishment and maintenance of a project website. C. Special Features

32. The Project supports ADB’s emphasis on inclusive growth, as laid out in Strategy 2020; IFAD’s mandate for poverty reduction; and the Government of Finland's development policy. Faster agricultural growth with an emphasis on increasing productivity, diversification, and commercialization of smallholder farmer livelihood strategies is expected to reduce poverty. The Project will mobilize ADB's expertise in the development of rural infrastructure and financial services in cooperation with IFAD's expertise in agricultural development to transform the agricultural production of project communes. Financing from the Government of Finland will allow knowledge and market information to be provided to rural communities more effectively. 33. The Project has taken many of the features of ADB’s TSI and has drawn lessons from the projects financed under the TSI and by other development partners. The Project is aligned with the Government's decentralization and deconcentration reforms. The communes are responsible for planning and execution decisions, while district and provincial administrations are responsible for service delivery. The Project works within the commune, district, and provincial planning systems to identify priority investments. The integration of project support with commune planning enables the Project to recognize the diversity of commune situations and provides access to a menu for change that responds to demand-driven approaches. The Project will promote competitive service delivery, particularly for agricultural extension and support services. Technical ministries and departments, as well as private sector service providers, will compete in the marketplace to provide project-financed support services. 34. Specific measures set out in the project gender action plan (Supplementary Appendix E) will ensure that women benefit from the Project.36 These measures include (i) the engagement of at least one female facilitator per commune; (ii) extensive consultation with women to identify their needs and preferences; (iii) at least 35% of unskilled labor created under the project to be for women; (iv) at least 30% women’s participation in committees, such as water users groups and market committees; (iv) at least 50% of the new loans leveraged by the Project to be for women; and (v) at least 30% women’s participation in livelihood training programs and 50% in borrower training to manage credit and income. D. Project Investment Plan

35. The Project is estimated to cost $55.30 million, including taxes and duties of $4.75 million (Table 1). Detailed cost estimates are in Appendix 4 and additional details are in Supplementary Appendix F.

35 Officers of the executing and implementing agencies participated in the ADB project implementation seminar held

in Phnom Penh on 19–27 October 2009. 36 The Project is classified as supporting effective gender mainstreaming by the ADB.

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Table 1: Project Investment Plan

($ million)

Item Amounta

A. Base Costb

1. Commune Development Component 42.23 a. Rural Infrastructure 11.56 b. Improved Access to Finance 6.96 c. Agricultural Productivity Enhancement 17.32 d. Rural Information and Communication Technology 6.39

2. Enabling Policy Environment Improvement 1.04

3. Project Management 8.65 a. Consulting Services 3.80 b. Equipment, Furniture, and Vehicles 0.44 c. Operating Costs 3.18 d. Incremental Staff 1.23 Subtotal (A) 51.92B. Contingenciesc

1. Physical 2.18 2. Price 1.10 Subtotal (B) 3.28C. Financing Charges During Implementationd 0.10 Total (A+B+C) 55.30

a Includes taxes and duties of $4.75 million. b In June 2009 prices. c Physical contingencies computed at 5% for all expenditure categories. Price contingencies computed at

1.4% in 2010, 0.4% in 2011, and 0.5% thereafter on foreign exchange costs, and 3% on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Includes interest charges. Source: Asian Development Bank estimates.

E. Financing Plan

36. ADB will provide $30.70 million, comprising a loan in special drawing rights equivalent to $3.40 million and a grant not exceeding the equivalent of $27.30 million, both from its Special Funds resources, to finance 55.5% of the project costs. IFAD will provide $13.38 million, comprising a loan in special drawing rights not exceeding the equivalent of $6.69 million and a grant in special drawing rights not exceeding the equivalent of $6.69 million on a joint cofinancing basis to finance 24.2% of the project costs. The Government of Finland will provide a grant in euros not exceeding the equivalent of $5.75 million to finance 10.4% of the project costs on a joint cofinancing basis. ADB will administer the IFAD and Government of Finland cofinancing. The Government of Cambodia will contribute $5.47 million to finance recurrent and investment costs, including $4.75 million in taxes and duties, accounting for 9.9% of the total project costs. The ADB loan portion will have a maturity of 32 years with a grace period of 8 years, and an annual interest rate of 1.0% during the grace period and 1.5% thereafter. The Government will bear the foreign exchange risk. Interest charges on the loan are to be capitalized. The summary financing plan is in Table 2 and details are in Appendix 4.

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Table 2: Financing Plan ($ million)

Sources Total %

Asian Development Bank 30.70 55.5 Loan 3.40 6.1 Grant 27.30 49.4

International Fund for Agricultural Development 13.38 24.2 Loan 6.69 12.1 Grant 6.69 12.1

Government of Finland 5.75 10.4 Government of Cambodia 5.47 9.9

Total 55.30 100.0 Source: Asian Development Bank estimates. F. Implementation Arrangements

1. Project Management

37. The MAFF will be the Executing Agency for the multi-project loan and grant project, and will assume overall responsibility for project implementation. The MAFF will establish a development coordination unit (DCU) to be located in the MAFF secretary general’s office. The DCU will have the following roles and responsibilities: (i) undertake consolidated planning, budgeting and reporting functions; (ii) open and maintain Project accounts; (iii) prepare, in a timely fashion, the necessary withdrawal applications for submission to MEF, and onward to ADB, for reimbursement, based on the financial statements and requests from the implementing agencies; (iv) procure goods and consulting services in cooperation with the implementing agencies following procedures acceptable to the ADB; (v) appoint independent auditors, acceptable to the ADB; (vi) establish within 6 months of the effective date, a monitoring and evaluation system (including conducting the base line, midterm and project completion reviews); (vii) review and consolidate the project annual work plan and budget prepared by the implementing agencies; (viii) consolidate the progress and financial reports prepared by the implementing agencies; (ix) disseminate project reports to ADB, IFAD and other stakeholders in a timely manner; (x) assist and advice the implementing agencies and the participating provinces on project implementation; and (xi) provide secretariat support to the project steering committee. The DCU will be chaired by a project director, a deputy secretary general of MAFF, with two deputy project directors and staff. One deputy project director will be responsible for project coordination, planning, monitoring and evaluation, and reporting; the other will be responsible for financial and administrative-related matters. The terms of reference for DCU staff are in Supplementary Appendix G. Project implementation arrangements and fund flows are in Appendix 5. 38. The Council for Agriculture and Rural Development (CARD) will undertake the functions of the project steering committee and as part of its regular functions. CARD will consider project matters quarterly to (i) provide policy guidance; (ii) review project progress; and (iii) resolve policy issues related to the Project. CARD may receive inputs from the Supreme National Economic Council on policies and regulations that support smallholder farming communities. 39. The Project will have three implementing agencies. The National Committee for Sub-National Democratic Development Secretariat (NCDDS) will be responsible for delivery of the first three subcomponents under the commune development component and the NIDA will be responsible for the fourth subcomponent (paras. 23–29). The MAFF will be responsible for the improved agricultural policy environment component (para. 30) and the effective project

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management component (para. 31). Each implementing agency will appoint a project manager and qualified staff to be responsible for carrying out its activities, in coordination with the project director in the DCU. 40. At the subnational level, the Project will provide funding, through the NCDDS, to the four provincial, 28 district, and 196 commune councils and their administrations to plan and manage their assigned functions consistent with the Organic Law, project implementation guidelines37 and the project administration memorandum. The communes will be selected taking into account the commune database poverty score with the priority given to the poorer communes and those that have the potential to increase agricultural production and productivity with urban or urbanizing communes excluded. The Government will ensure that the eligible project activities at the subnational level are: (i) included in the CIP; (ii) endorsed by NCDDS' project manager; and (iii) submitted by the NCDDS' project manager to DCU for incorporation into the PAWPB. The project resources allocated to the commune councils will be block grants computed using the same formula as for the Commune/Sangkat Fund and as additional resources to those provided by the Government. The project resources will be used only for works, goods and technical services as agreed with NCDDS. The provincial units of NCDDS will ensure the provision of administrative and technical support for preparation and implementation of project activities at the subnational level. Terms of reference of provincial, district, and commune support staff are in Supplementary Appendix H.

2. Implementation Period

41. The Project will be implemented over 7 years, from 1 March 2010 to 31 August 2017. Each participating commune will receive project support for 5 years. The phasing of disbursement will reflect the demand-driven character of the Project, the capacity of the commune councils and the associated groups, and the nature of their infrastructure investment proposals as reflected in their CIPs and consolidated into the annual work plan and budget. The commune phasing plan is in Supplementary Appendix C; the project implementation schedule is in Appendix 6.

3. Procurement

42. The project procurement plan is in Appendix 7. Prior- and post-review thresholds have been discussed and agreed upon with the MAFF, and are included in the procurement plan. Procurements at the commune level will be through shopping or community participation in procurement procedures acceptable to the ADB, using the NCDDS Commune/Sangkat Fund Implementation Manual (footnote 37). Procurement of goods, works, and services not procured by the commune council will be by national competitive bidding in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). 43. Individual works contracts under component 1 will not exceed $30,000 and may be awarded to contractors selected using procurement and contract management procedures developed under NCDDS (footnote 37). Contracts for simple civil works may also be awarded to community groups following procedures for community participation in procurement in accordance with ADB’s Procurement Guidelines. The first civil works contract in each province will be subject to ADB approval. Subsequently, the provincial local administration unit will maintain documents38

for review by ADB. The Project will engage contract staff and service providers following procedures developed under the NCDDS (footnote 37). 37 NCDDS. 2009. Commune/Sangkat Fund Project Implementation Manual. Phnom Penh (September). 38 These include the commune development plan, bid invitation letters, bid opening statements, bid evaluation reports

or approval documents, and signed contracts between the commune council and contractors, where applicable.

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4. Consulting Services

44. The Project will require a total of 1,024 person-months of consulting services and national advisors: 76 person-months of international consultants, 516 person-months of national consultants for project management and expert services, and 432 person-months of national advisors at provincial and district administration offices. A summary consulting service schedule is in Supplementary Appendix I. The outline terms of reference for consultants is in Supplementary Appendix J. Recruitment of the majority of consulting services will be through a firm following the quality- and cost-based selection process, using an 70:30 quality–cost ratio. Four person-months of international consulting services and 84 person-months of national consulting services are envisaged as individual specialists. The Project will recruit international and national consultants for special studies as individual consultants. The recruitment of international and national advisors will follow Government procedures acceptable to ADB (footnote 37) to achieve maximum alignment of project staffing and procedures with existing Government structures and procedures. Except for the national advisors, recruitment of consulting services will be in accordance with ADB's Guidelines on the Use of Consultants (2007, as amended from time to time).

5. Anticorruption Policy

45. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan and grant regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project. The Government will also ensure that the Good Governance Framework (Supplementary Appendix O) is implemented in a timely manner. The Project incorporates several specific anticorruption measures, including (i) strict financial management with strengthened Government accounting, auditing, and monitoring; and independent monitoring and review by TA consultants; (ii) supervision of all procurement financed under the Project with appropriate consultancy input; (iii) delegation of project administration to the Cambodia Resident Mission, enabling frequent interaction with the staffs of the executing and implementing agencies; and (iv) random and independent spot-checks by ADB officials and the project consultants. 46. The NCDD has established accountability working groups in all provinces, and they are responsible for receiving and following up on complaints related to financial and procedural issues. The working groups' membership includes senior provincial officials, commune council representatives from different political parties, private sector contractors, and NGOs. This mechanism was developed through cooperation between the World Bank and the United Nations Development Programme Project Support for Decentralisation and Deconcentration, and the mandate covers all funds channelled through the NCDD systems. The Project will actively engage the group to allow potential project beneficiaries and other stakeholders to channel and address any complaints they may have on the implementation of the Project. If there are complaints, the group will be required to conduct necessary investigation and report immediately to ADB any malfeasance or maladministration occurred under the Project.

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6. Disbursement Arrangements

47. The Government will establish individual pass-through accounts at the National Bank of Cambodia to receive ADB, IFAD, and Government of Finland loans and grants. To support effective project implementation and timely loan disbursement, the Government will establish three first generation imprest accounts (FGIAs) at a commercial bank acceptable to ADB immediately after ADB has confirmed the EA has assigned accounting staff and established the agreed accounting procedures. The DCU located in the MAFF will administer the FGIAs.39 The FGIAs will be established for pooled resources of the project financiers: ADB, IFAD, and the Government of Finland (Appendix 5). All withdrawal applications will be sent to ADB for processing. The MAFF will prepare separate withdrawal applications for each financing source. The ceilings for the FGIAs will be set at the lower of the 6 months of estimated expenditures to be funded through each account from each fund source, or 10% of the resource allocations. The ceilings will be monitored and updated every 6 month based on the estimated expenditures over the next 6 months of project implementation. Funds will flow to the implementing agencies to finance the activities they are responsible for. ADB will make direct payments from the Asian Development Fund grant resources for agreed consulting services. 48. For transparency of operations, and to simplify the MAFF's task of reconciliation of expenditures with fund sources, three second generation imprest accounts (SGIAs) with pooled funds will be established at a commercial bank acceptable to ADB immediately after ADB has confirmed the IA has assigned accounting staff and established the agreed accounting procedures. The project implementing agencies—the MAFF, NCDDS, and NiDA—will operate the accounts. The ceiling of each SGIA will be set at the lower of the 6 months of estimated expenditures to be funded through the SGIA from each fund source, or 10% of the resource allocations. For commune development activities, each commune will open an account at a commercial bank acceptable to ADB. The commune activity plan will be the basis for a grant contract between a commune council and the NCDDS. After the contract is signed, block grants (maximum of $150,000 per commune over the project period and a maximum of $30,000 per subproject) can be released to the commune council from the NCDDS (Appendix 5). 49. FGIAs and SGIAs will be established, managed, replenished, and liquidated in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time) and the financial regulations of the Government. The accounts will be liquidated and replenished according to ADB's statement of expenditures procedures, based on withdrawal applications submitted to ADB from time to time. Each individual payment reimbursed or liquidated using the statement of expenditures procedures will not exceed the equivalent of $50,000.

7. Accounting, Auditing, and Reporting

50. The MAFF will maintain records and accounts adequate to identify the goods, works, and services financed by the loan and grant proceeds by source of financing. All project accounts will be set up, operated, and reported on using sound accounting standards acceptable to ADB. The MAFF will ensure that the consolidated project accounts and related financial statements will be audited annually by an independent auditor acceptable to ADB and IFAD. The audited reports and related financial statements in English will be submitted to ADB, IFAD, and the Government of Finland not later than 6 months after the end of the fiscal year to which they relate. In addition to the Government of Cambodia audit of the procurement of goods, works, and services financed

39 The MAFF and the implementing agencies have implementation experience with projects financed by ADB and

other development partners. Additional training will be provided to the DCU and implementing agency accounting staff to promote full compliance with project procedures related to operation of pooled imprest accounts.

18

from the loans and grants, ADB, IFAD, and the Government of Finland will undertake a special audit. This could involve independent financial and performance auditing and review to support transparency, financial integrity, and objective performance assessment of the goods, works, and services procured and distributed from the loans and grants. A separate audit opinion is to be issued on (i) the use of the imprest accounts, special accounts, and grant bank accounts, including the SGIA and project accounts; (ii) government counterpart fund accounts; and (iii) the use of the statement of expenditure procedures. The financial and performance monitoring and review, including spot-checks, will be conducted from time to time during and after the Project. They will be carried out by external private auditors or by ADB.

8. Project Performance Monitoring and Evaluation

51. A project performance management system will be developed based on the project design and monitoring framework to monitor and evaluate the Project’s performance and impacts. The MAFF, through the DCU, will be responsible for developing and operating the system with information provided by the implementing agencies. It will report monthly to ADB, IFAD, and the Government of Finland on progress during implementation. Baseline data will be collected and processed before the initial investment in each commune, covering target and control groups. Periodic surveys will be carried out by subcontracting competent local NGOs, which will collect sex-disaggregated data by income group, types of vulnerability, and other characteristics as appropriate. In addition, the Project will collaborate with the Ministry of Planning to use the IDPoor database40 to identify households that qualify for project assistance and to evaluate project impacts on poverty in project communes. The MAFF will maintain a project-specific web page, in English and Khmer, on its website for wider dissemination of procurement and project performance information, and to provide a feedback mechanism. 52. ADB, IFAD, the Government of Finland, and the Government of Cambodia will conduct joint semiannual reviews throughout project implementation to assess the implementation performance and achievement of Project outputs, examine financial progress, identify issues and constraints affecting the Project, and work out a time-bound action plan for their resolution. The reviews will (i) assess implementation performance and achievement of Project outputs; (ii) examine financial progress; (iii) identify issues and constraints affecting the Project; and (iv) work out time-bound action plan for their resolution. The Government of Cambodia, ADB, IFAD, and the Government of Finland will jointly undertake a comprehensive midterm review within 36 months of project effectiveness to assess implementation progress and to determine appropriate revisions to the project implementation arrangements and resource allocations in order to ensure successful project completion. The Government of Cambodia, through the MAFF, will provide ADB, IFAD, and the Government of Finland with (i) quarterly progress reports during implementation; and (ii) a project completion report within 3 months of project completion to evaluate the project design, costs, performance, social and economic impact, and other details as agreed upon with ADB, IFAD, and the Government of Finland. Post-evaluation will be carried out 3 years after project completion.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Benefits and Impacts

53. The Project is expected to benefit about 630,000 households (or about 2.5 million people) in 196 communes of four provinces through investments, training and capacity building,

40 Government of Cambodia, Ministry of Planning. Identification of Poor Households Programme.

http://www.mop.gov.kh/Projects/IDPoor/tabid/154/Default.aspx (accessed 10 August 2009).

19

and livelihood field demonstrations and follow-up support. Most households in the project communes involved in agricultural production have less than 1.0 hectare of usable agricultural land and are considered resource-poor smallholders. The Project is expected to yield major benefits, including the following:

(i) Incremental benefits from higher yields and productivity of crops and livestock resulting from use of appropriate inputs, such as seed of high-quality varieties adapted to the local conditions, appropriately managed land, fertilizers, better crop husbandry, water management techniques, access to information, and extension services.

(ii) Social and economic empowerment of the men and women in the farmers’ organizations, and local communities through capacity building and self-help groups.

(iii) Reduction in incidence of poverty resulting from formation of LIGs, whose membership will comprise members of resource-poor households. Project assistance will improve these households' food security, enable them to produce for the market, and move out of poverty. Project targeting will develop mechanisms to ensure that the poor do not exclude themselves from participation as members of the LIGs.

(iv) Increased access to affordable capital to increase productivity. The creditworthiness of LIG members and other smallholders will improve, enabling them eventually to access credit from formal financial institutions at lower costs.

(v) Improved asset accumulation by adopting alternative livelihood opportunities, diversifying risk, and realizing higher gross margins from increased factor productivity, access to markets, and affordable finance. In the long run, smallholders will benefit from greater knowledge of household economics and entrepreneurial attitudes.

(vi) Gender actions, including development of the LIGs (Supplementary Appendix E), will increase access to assets and capacity building for women, and improve awareness of project and agency staff regarding gender issues.

(vii) Better governance at the provincial, district, commune, and village levels through the involvement of the local communities in the preparation of the CIPs and in the selection of group members.

(viii) Better rural infrastructure, including rural roads, small-scale irrigation systems, markets, and post-harvest structures will improve productivity, market links, and product quality after harvest.

(ix) Internal economic rates of returns calculated for four subprojects, chosen as representative of the whole project are 44%–50% with benefit–cost ratios of 1.5–1.6:1. Sensitivity analyses show that these results are robust with respect to an increase in capital and recurrent costs, implementation delay, and potential input- and output-related risks that would reduce project benefits. Summary economic analyses are in Appendix 8; and details are in Supplementary Appendix K.

B. Social Aspects

54. The major social impacts of the Project are expected to be positive. Women, especially those who are heads of households, will benefit through improved entitlement to food and enhanced income-earning opportunities supported by credit, skills development, and market access. A gender action plan has been formulated to address concerns of female clients (Supplementary Appendix E). Ethnic minorities will benefit side by side with majority communities, but efforts will be made to ensure participation of the ethnic minorities. The MAFF will ensure that (i) all ethnic minority groups in and around proposed subproject locations are

20

consulted on their willingness to participate and the suitability of the sites and subproject activities, and (ii) they are given equal opportunities to participate in subproject activities including training. No involuntary resettlement is expected. Small-scale infrastructure will only be upgraded or built on public land or where communities agree to donate their land in exchange for benefits, in accordance with the procedural guidelines for confirming resettlement impact developed for the Project (Supplementary Appendix L). A summary poverty reduction and social strategy is in Appendix 9. C. Environmental Aspects

55. An initial environment examination was conducted for the Project as a whole and for 20 pilot communes in the four project provinces to identify potential impacts, mitigation measures, and monitoring mechanisms (Supplementary Appendix M). The Project's proposed small infrastructure interventions will involve the rehabilitation or construction of commune market centers; rehabilitation and upgrading of minor roads and drainage structures; and rehabilitation and upgrading of small embankments, reservoirs, and canals. In accordance with ADB’s Environmental Assessment Guidelines (2003), the Project is in category B.41 Subprojects will be undertaken only after it has been ascertained that widespread negative environmental impact would not result, based on the environmental assessment and review framework developed for the Project (Supplementary Appendix N). Subprojects close to environmentally sensitive areas will be avoided. Mitigation measures are suggested and adequate funding provided to address minor local impacts of identified projects. Subprojects will follow environmental assessment procedures stipulated in the environmental assessment and review framework. The Government’s environmental regulations and ADB’s Environment Policy (2002) will be fully complied with. D. Risks and Mitigations

56. The Government's commitment to faster agricultural growth may diminish in the face of other development priorities over the project implementation period. ADB will monitor the enabling environment during project implementation and assist the Government in addressing priority policy and institutional reforms to support smallholder farming systems. The Project's alignment with the Government's decentralization and deconcentration reforms will improve governance and reduce corruption. The Project's good governance framework is in Supplementary Appendix O. 57. Commune councils are responsible for implementation of commune development investments. The Project will provide resources to support additional persons to assist commune and district councils, and to strengthen the capacity of provincial and district administrations of line agencies to perform their support functions effectively (para. 40). The quality of construction of small-scale infrastructure is frequently poor and subsequently poorly maintained. These concerns will be mitigated by close supervision and monitoring by a strong project implementation team; the establishment and training of beneficiary groups, including water user committees; and the use of appropriate types of construction (i.e., requiring little maintenance).

41 Projects in this category are judged to have some adverse environmental impacts, but the impacts are not

significant.

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V. ASSURANCES AND CONDITIONS

58. The Government has given the following assurances, which are incorporated in the legal documents:

A. Project Management (i) The Government will ensure that each of the implementing agencies will appoint,

within 1 month of the effectiveness date, the project manager and all the required staff to manage their relevant activities, including financial and disbursement management staff.

(ii) The Government will ensure the establishment of sound administrative and accounting systems to manage pooled imprest accounts funded by multiple fund sources at EA and IAs prior to the establishment of imprest accounts for pooled funds.

(iii) The Government will ensure that NCDDS and NIDA coordinate closely with other agencies and institutions, including transferring project resources as required to these agencies and institutions, to ensure successful implementation of assigned tasks.

B. Counterpart Funds (i) The Government will ensure that (a) adequate counterpart funds required during

the Project implementation period are provided on timely basis to the relevant government agencies; (b) annual budgetary appropriation requests are submitted in a timely manner; and (c) appropriated funds are disbursed promptly when needed for Project implementation purposes.

C. Good Governance (i) The Government will ensure that Project implementation at the subnational level

is aligned with its decentralization and deconcentration systems and procedures and that the associated fiduciary risks related to this are appropriately managed.

(ii) The Government will ensure that (a) within 6 months of the effectiveness date, the DCU will have established a project-specific website for public disclosure on the use of the loan and grant funds; including details of procurement and contract awards, and reports of the independent monitor, (b) the website will be updated within 1 week of contract awards, and (c) within 2 weeks after the information has been posted on the website will also be posted on the commune notice boards.

D. Rural Infrastructure (i) The Government will ensure that commune investment proposals for rural

infrastructure (a) are processed through the procedures applicable for the preparation of the commune investment plan and (b) include approximately 10% of the budget for operations and maintenance of the infrastructure.

(ii) The Government will ensure that any rural infrastructure financed under the Project will be technically and financially sustainable and that: (a) the design will (i) be based on sound engineering practice, (ii) be within the local implementation capacity, (iii) maximize potential local employment and income benefits, including the use of labor-based appropriate technology, and (iv) use whole life costs estimates to compare options; and (b) the maintenance requirements of the infrastructure are consistent with the local technical and financial capacity.

(iii) The Government will ensure that the Project will not finance: (i) any construction of buildings or other structures to be used by either the police and other security forces, religious organizations or political parties; (ii) any general administration

22

and operating costs of the local government in the Participating Communes; (iii) any investment that has negative impacts on the environment, minority or disadvantaged people, or resettlement, or requires land acquisition; (iv) any rural infrastructure investment that has EIRR of less than 12%; (v) any investment that is deemed by the Government to be nonviable from either the technical or financial aspect; (vi) an LIG with less than 15 households; (vii) any investment in which the benefits would be restricted to less than 50% of the LIG member households; and (viii) any irrigation and drainage improvements that would benefit less than ten households.

(iv) The Government will ensure that all contracts contain a provision that in the event UXO clearance is needed, the services of a reputable and experienced mine security organization, acceptable to ADB and IFAD, will be engaged by the contractor to carry out and then certify that the subproject area is clear of UXO.

E. Agricultural Support (i) The Government will ensure the target beneficiaries for membership of LIGs are

selected in strict compliance with the screening and selection criteria agreed upon between the Government and ADB and IFAD.

(ii) The Government will ensure that project activities related to agricultural support services will be implemented in accordance with national agricultural policies and guidelines.

F. Environment and Social Safeguards (i) The Government will ensure that all project activities are implemented in strict

conformity with the Government's relevant laws and regulations, and the requirements of ADB's Environment Policy (2002, as amended from time to time). If there is any discrepancy between the Government’s relevant laws and regulations, and the requirements of ADB's Environment Policy, ADB’s policy shall apply.

(ii) The Government will ensure that all activities to be funded under the Project will give special consideration to the participation and practices of ethnic minority population in compliance with ADB’s Policy on Indigenous Peoples. In the event that indigenous people are beneficiaries of any subproject, the MAFF will ensure that (a) all ethnic minority groups in and around proposed subproject locations are consulted on their willingness to participate, suitability of the sites and subproject activities; and (b) they are given equal opportunities to participate in subproject activities including training.

(iii) The Government will ensure that (a) the development and upgrading of rural infrastructure or any other Project activities will not have any adverse involuntary resettlement impact and will be carried out in accordance with Procedural Guidelines for Confirming Resettlement Impact developed for this project; and (b) proposals for civil works will include confirmation that no involuntary land acquisition or resettlement will be required under the Project. In the event of unforeseen land acquisition or involuntary resettlement under the Project, the Government will immediately inform ADB and prepare the necessary planning documents in compliance with ADB’s Involuntary Resettlement Policy (1995, as amended from time to time).

(iv) The Government will ensure that women and men will be paid equal remuneration for the work of equal value. Child labor will not be allowed; and the measures included in the gender action plan prepared for the Project will be

23

undertaken, and the resources needed for their implementation will be made available, in a timely manner.

(v) The Government will take appropriate measures to implement the gender action plan to ensure that women can participate and benefit equitably under the Project.

G. Finland Grant

(i) In the event the cofinancing arrangement from the Government of Finland cannot be obtained, the Government will take all necessary and appropriate steps to make other arrangements to cover the shortfall, through budget allocations or other arrangement that is acceptable to ADB. If such arrangements cannot be made, the Government will agree that the components or activities of the Project will be scaled down.

H. Condition Prior to Award of Contracts for Civil Works (i) The Government will not award any contracts for civil works until an

environmental screening of the works has been carried out in accordance with the Environmental Assessment and Review Framework agreed upon by the Government and ADB.

VI. RECOMMENDATION

59. I am satisfied that the proposed loan would comply with the Articles of Agreement of the ADB and recommend that the Board approve:

(i) the loan in various currencies equivalent to Special Drawing Rights 2,132,000 to the Kingdom of Cambodia for the Tonle Sap Poverty Reduction and Smallholder Development Project from ADB’s Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Financing Agreement presented to the Board;

(ii) the grant not exceeding $27,300,000 to the Kingdom of Cambodia from ADB’s Special Funds resources for the Tonle Sap Poverty Reduction and Smallholder Development Project, on terms and conditions that are substantially in accordance with those set forth in the draft Financing Agreement presented to the Board;

(iii) the administration by ADB of the loan not exceeding the equivalent of $6,690,000 and the grant not exceeding the equivalent of $6,690,000 to the Kingdom of Cambodia for the Tonle Sap Poverty Reduction and Smallholder Development Project to be provided by the International Fund for Agricultural Development; and

(iv) the administration by ADB of the grant not exceeding the equivalent of $5,750,000 to the Kingdom of Cambodia for the Tonle Sap Poverty Reduction and Smallholder Development Project to be provided by the Government of Finland.

Haruhiko Kuroda President 16 November 2009

Appendix 1 24

Sri DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

Impact Livelihoods of about 630,000 households in four provinces in Tonle Sap basin improved by 2020

Annual months of food shortage reduced from 3 months in 2008 to 1 month by 2020 in target communes No of households classified in class 2 poverty reduced by 50% in 196 project communes by 2020

Annual commune statistics Sample surveys

Assumptions

Continued political stability

Decentralization and deconcentration policy reforms continues to support commune development and investment plans

Implementation of complementary projects, especially transport and power sectors are not delayed

Outcome Agricultural productivity increased and improved access to markets created in 196 communes in four provinces in Tonle Sap basin

By 2017 in participating communes: Average rice yields increased to more than 3.50 t/ha (Cambodia, Lao PDR, Thailand and Viet Nam average 3.40 t/ha in 2007) Diversified farming systems reduce share of household income from rice by 20% Marketed farm and off-farm products increased by 25% Participation in livelihood activities of the poor and poorest groups, including women and female heads of households, at least 10% higher than their percentage of the population in the target communes More than 70% of the membership of LIGs graduate to become eligible for formal credit services

Sample crop cuts using FAO methodology Provincial agricultural statistics Household and commune surveys LIG records in project communes

Assumptions

Government commitments to the Project remain firm

Outputs 1. Rural infrastructure improved

By 2017 (unless otherwise indicated) Ninety kilometers of rural roads and small-scale irrigation and drainage facilities covering 2,500 ha farmland improved, rice drying and storage facilities established in 100 communes, and local markets developed selected villages.

Commune council reports

2. Rural financial services strengthened and extended to resource-poor smallholder farmers

All project communes have access to formal rural credit by 2014

MFI records Commune-level interviews

Assumptions

Government priority to support the development in the Tonle Sap basin is sustained

The Government remains committed to its decentralization and deconcentration policy

Risks

Underperforming commune councils will undermine project

Appendix 1 25

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

About 50% of rural loans are taken by women by 2013

3. Local planning, research, extension, and information delivery services support improvement to facilitate higher agricultural productivity by smallholder farmers

80% of farmers using improved technology 2 years after adoption 1,200 of LIGs operating with equitable female and male membership from the target socioeconomic category (IDPoor category 2) Women represent 50% of project trainees and 30% of livelihood beneficiaries

Sample surveys, disaggregated by sex and by IDPoor socioeconomic category Provincial agricultural statistics

4. E-kiosks established and operational in selected district and commune centers

20 kiosks established and operational by 2013 Use of ICT for agricultural information increased

ICT use records at village e-kiosks Interviews

5. Agricultural policy environment and regulatory frameworks improved supporting poverty reduction and smallholder development.

Decree, subdecree, and implementing guidelines for good agricultural practices developed Decree, subdecree, and implementing guidelines for farmer associations developed Decree, subdecree, and implementing guidelines for Seed Law developed New policy decrees published and training systems implemented with 1,500 persons trained Studies completed and recommended policy directions provided on use of GMO crops and hybrid seeds

Publication of relevant documents Training records Project progress reports

6. Executing and implementing agencies strengthened for effective project management.

Project implementation is completed within 7 years, all accounts are closed with 7.5 years, and initial evaluations confirm that the project will achieve its objectives..

Executing agency project completion report

outcomes

The Government's commitment to establishing an enabling policy and institutional environment to support faster agricultural growth may wane

Activities 1. Rural infrastructure improved 1.1 Approve feasibility studies of prioritized infrastructure projects (annual plan) 1.2 Award and implement contracts (annual cycle) 1.3 Monitor and report progress (during construction) 2. Rural financial services strengthened 2.1 Select MFIs for credit line and technical services (within 6 months) 2.2 Conduct training of partner MFI staff (annual plan) 2.3 Prepare and implement a training plan for borrowers (annual plan)

Inputs

Total Costs: $55.30 million Inputs by Expenditure Category (including contingencies):

Civil Works: $12.15 million

Appendix 1 26

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms

Assumptions and Risks

3. Agricultural productivity increased 3.1 CIPs prepared and approved (no. and no of poor participating). Infrastructure and

livelihood subprojects prepared and implemented (no.) 3.2 Establishment and training of farmer extension, demonstrations, and adaptive

research, and marketing groups, the number of members disaggregated by sex and socioeconomic status (annual plan)

3.3 Establishment of LIGs, with the number of members disaggregated by sex and socioeconomic status (target 1,480 LIGs)

3.4 Establishment of LIG group revolving funds (target 1,480) 3.5 Contract technical services (annual) 3.6 Organize vaccination campaign (annual plan) 3.7 Organize farmer education, training, and technology transfer (annual plan) 3.8 Prepare and implement a gender action plan, with women to receive 30% of project-financed training, 50% of subsidized inputs, 35% of unskilled labor created, and 50% of new microfinance institution loans in the target communes. 3.9 Establish livelihood improvement groups (ongoing based on annual plan) 4. E-kiosks established 4.1 Develop better agricultural training and information for dissemination through ICT systems (year 1 and ongoing) 4.2 Prepare a work plan for scaling up rural ICT (year 2) 4.3 Establish e-kiosks in selected district and commune centers (years 2–4) 4.4 Provide training for e-Kiosk operators (years 2–4) 4.5 Implement routine content delivery through project supported services (from year 2) 5. Enabling environment created 5.1 Identify and agree on policy, law, and regulatory reforms (within year 1) 5.2 Prepare and implement annual work plan for policy reform (ongoing) 5.3 Contract technical support required (annual cycle) 5.4 Promote stakeholder participation in reform process (as required) 5.5 Support dissemination of new laws, sub-decrees, and regulations (ongoing) 6. Effective project management 6.1 Establish project steering committee and conduct quarterly meeting (advance action) 6.2 Establish development coordination unit at the MAFF (advance action) 6.3 Recruit and train project implementation staff at all levels (within year 1) 6.4 Establish PIUs at MAFF, NCDDS, and NIDA (advance action) 6.5 Procure consultants, equipment and vehicles (advance action, within 6 months) 6.6 Develop and approve annual work plan and budget (annual plan) 6.7 Develop and implement project monitoring and evaluation system (ongoing) 6.8 Prepare progress and financial reports as required by the project-specific agreements (ongoing)

Livelihood Group Inputs (access to finance): $6.583 million

Extension Services: $7.592 million

Rural ICT: $6.387 million

Equipment, Vehicles, and Furniture: $2.068 million

Capacity Development and Training: $2.202 million

Surveys, Monitoring, and Auditing: $2.091 million

Consulting Services: $4.415 million

Incremental Staff: $7.650 million

Operation and Maintenance: $4.069 million

Interest During Implementation : $0.097 million

Inputs by Financier:

ADB grant: $27.300 million

ADB loan: $3.400 million

Government of Finland: $5.748 million

IFAD: $13.380 million

Government of Cambodia: $5.472 million

ADB = Asian Development Bank; CIP = Commune Investment Plan; GMO = genetically modified organism; IDPoor = Ministry of Planning - Identification of poor households program, ICT = information and communication technology; IFAD = International Fund for Agricultural Development; LIG = livelihood improvement group; MAFF = Ministry of Agriculture, Forestry and Fisheries; MFI = microfinance institutions; NCDDS = National Committee for Sub-National Democratic Development Secretariat; NIDA = National Information and Communications Technology Development Authority; PIU = project implementation unit, t/ha = tons per hectare. Source: Asian Development Bank estimates.

Appendix 2

27

SECTOR ANALYSIS

A. Sector Performance

1. The total of area of Cambodia is 181,035 square kilometers. The country consists of 20 provinces and 4 municipalities, and is divided into 184 districts, 1,621 communes, and 13,707 villages. Forests cover 12.1 million hectares (ha), or 67% of the total land area. Cultivated area is 21% of the total (3.78 million ha) with paddy cultivation occupying 91.2% of the total. The main crops are paddy (wet season, dry season, receding, and floating), corn, soybean, mung bean, cassava, sugarcane, peanut, sesame, sweet potatoes, Chinese cabbage, cauliflower, lettuce, water melon, and tobacco. 2. Paddy rice production increased from 3.5 million tons in 1996 to about 6.7 million tons in 2007. Milled rice surplus was estimated at 1.6 million tons in 2007.1 Plantation and industrial crops include rubber, cashew nut, pepper, palm sugar, palm oil, and fruit trees (mango, pineapple, jackfruit, durian, rambutan, and banana). Forest products include teak wood and acacia (timber), and nontimber forest products such as bamboo, grass, fodder, honey, mushrooms, and firewood. Fish production (freshwater, community and rice field production, aquaculture, and marine) in 2004 was 321,000 tons. The share of agriculture, fisheries, and forestry in the national economy declined from 46% of gross domestic product (GDP) in 1993 to 30% in 2006. Within agriculture, the share of the crop sector increased from about 40% of GDP to about 50%. Correspondingly, the share of noncrop sectors declined from about 60% of GDP to 50. The share of agriculture, fisheries, and forestry in total employment declined from 70% in 2001 to 57% in 2006.2 B. Sector Constraints

3. The development problem is the slow and variable growth of agriculture and the low level of rural sector development, reducing the capacity of agriculture to support the growing population and absorb additional workers. Food insecurity affects about a 20%–30% of rural households during cropping seasons. The main problem in the agriculture sector is low factor productivity in terms of labor (about $170 per worker) and land ($518 per ha).3 Poor land productivity is linked to one of the lowest paddy yields in Southeast Asia at 2.50 tons per hectare (t/ha)—and in some areas less than 1.00 t/ha—compared with Viet Nam’s 4.95 t/ha and a world average of 4.00 t/ha. In addition, Cambodia suffers from a significant yield gap,4 as do several other countries such as India, the Philippines, and Viet Nam. This affects household well-being in rural areas dominated by rice production. Labor productivity, as measured by agricultural value added per worker, is also low compared with other countries. A farmer with 1 ha and 2 tons of paddy rice will make about $200 per year (more now with higher rice prices), a low income for an average family of five. This combines with the following other factors to make rural households extremely vulnerable to market and nonmarket shocks: lack of biosecurity; lack of access to information and communication technology (ICT); lack of market access for

1 Government of Cambodia, Ministry of Agriculture, Forestry and Fisheries. 2006. Agricultural Statistics 2005-2006.

Phnom Penh; and FAO/WFP Consultative Mission. May 2008. Draft Final Report. Phnom Penh. Table 1. 2 International Monetary Fund. 2007. Cambodia: Selected Issues and Statistical Appendix. IMF Country Report No.

07/291.Washington DC. (Table 1, August); and Economic Institute of Cambodia. 2007. Cambodia Economic Watch. Phnom Penh. (Issue 7, Table 1.1).

3 Agrifood Consulting International and CamConsult. 2006. Diagnostic Study, Phase 1 of Design, Agricultural Program, Cambodia, 2007–12. Program concept document final report prepared for the Australian Agency for International Development.

4 Yield gap is the difference between the maximum attainable yield and the farm-level yield. http://www.fao.org/rice2004/en/f-sheet/factsheet5.pdf

Appendix 2 28

products, inputs, services, and alternative employment and livelihood; poor risk management to hedge against uncertainties and fluctuations; policy inadequacies and slow implementation of the reform process; weak governance and institutions; and lack of participation. Low productivity is caused by poor resource quality and management, lack of or inadequate access to resources, lack of education and skills, poor health and nutrition, weak extension and research, and lack of social and physical infrastructure. The lack of biosecurity is caused by the loss biodiversity, threats to food safety, and a loss of environmental sustainability. 4. Major issues in land are poor soil quality, small and declining size of landholding, land fragmentation, lack of formal title compounded by slow registration, land grabbing especially in the uplands and city suburbs, land degradation and unstable yield due to erosion, water logging, flooding, salinity intrusion, loss of top soil and limited gains made so far from economic and social land concessions. Besides, in some areas fertilizer application is apparently causing degradation of the soil (hardening and acidity). The soils of Cambodia are diverse across its provinces and municipalities. Poor soils occur alongside highly reproductive soils. This soil diversity is not always known to farmers with the result they are unable to dovetail fertilizer application to avoid soil degradation. Lack of land leveling is a serious problem for application of irrigation and improved technology. National capacity to implement the 2001 Land Law is limited. The land registration progress is slow due to capacity constraint. Rural households lack knowledge to utilize land and natural resources optimally. 5. Water sector is constrained by inadequate hydrological data systems, low levels of investment in the sector and poor watershed conditions Land productivity is low also because of the lack of water and low productivity of water. Water availability is variable in time and spatial distribution. Irrigation efficiency is low in many cases because of poor system design, construction and operation and maintenance. Farmers lack knowledge of optimal water use. Farmer water user communities are weak. In the Tonle Sap area, much water is lost through rapid surface runoff into the lake. The Tonle Sap Lake ecosystem is under constant threat from population growth and pollution. According to available data, about 19% of the total area under food crop production in Cambodia is irrigated. The Food and Agriculture Organization (FAO) estimates that irrigation covers 274,172 ha. The Government has promulgated a comprehensive Law on Water Resources Management. 6. The main issues in the livestock sector are disease, mortality, and morbidity, as well as poor nutrition, small animal size of local breeds, weak veterinary service, and lack of vaccines and medicines. Cambodia lacks the capacity to ensure the biosecurity of animals, feed, and animal products. Animals carry diseases that are unchecked, and chemical residues or inadmissible substances may enter feed and meat. Cambodia is vulnerable to diseases that can cross borders, a threat exacerbated by the lack of border control and quarantine facilities. A feed shortage is a binding constraint. Transport to market is costly and unsafe as large animals are moved by trucks and small livestock by motorbike and taxi without control. The village livestock agent placed in each village has extended help to farmers. 7. Out of the total land area of 18 million hectares, over 11 million ha is under forest cover. Satellite survey in 2002 showed 61% forest coverage. It is now down to 59%, a loss of 2% in 6 years. The vast forest resources of Cambodia are being depleted due to illegal logging, encroachment, slash and burn agriculture and forest cutting for fuel wood. Flooded forests were reduced by one half between 1973 and 1997. Almost a third of the forest area is degraded. Illegal settlement on forest land is creating conflict with forest conservation on the one hand and local population who has use right to ancestral domain. Loss of vegetative cover is increasing soil erosion threatening agricultural land and water and thereby production.

Appendix 2

29

8. Fishery resources are under threat from over-fishing, the growing number of fishers, illegal fishing, environmental pollution, loss of mangrove and flooded forests, and the destruction of forested wetland for firewood. The fishing industry lacks infrastructure and credit. Consequently, the contribution of fisheries to GDP declined from 13.0% in 1994 to 7.2% in 2006. Fishers do not have access to modern technology or technical fishing skills. They mainly use traditional methods, which constrains increase in productivity. Fishing is carried out on a small scale by families in rice field fisheries, as well as on a medium commercial scale under license, and on a large commercial scale under concession lots auctioned for 2 years. In 2000, a major part of the concession areas were transferred to 330 designated community fisheries with a view to benefiting those communities, improving fish habitats, and ensuring sustainable management of natural resources. By 2005, 440 fishing communities were established involving 117,000 households. The reform process was rushed through without demarcated boundaries, legislation for establishment of communities, and adequate capacity of the Fishery Administration to take on the additional responsibility. Aquaculture is widespread in Cambodia. Inland aquaculture systems include cage, fish pond, and rice-fish5 culture. 9. Research and extension are weak. Both depend heavily on public sector participation. Market-based technology generation and dissemination is poorly developed. Farmers are subsistence-oriented; their limited market orientation comes mainly from the need to generate cash to pay off debts. The level of technology applied in all sectors and subsectors is rudimentary. Farmers have little education and skills; most have not received any training. There is no incentive to raise the level of technology and be linked to the market. Farmers lack interest and confidence in the gains to be made from switching technology switch or technological advances. Returns are uncertain and the risk of failure is great, which becomes intolerable when a loan is taken out to adopt new technology. The price of better technology is often too high for farmers and it is often not available at a manageable distance. 10. Farmers use only a modest amount of modern higher-quality seeds and other inputs. The use of farmer-grown traditional seeds in wet season predominates. The germination rate is low (40%–60%). Natural selection can increase yield by 10%–15%, but this is no substitute for modern improved seed varieties, which are used in dry season. Farmers can buy modern seed from rice seed associations or commercial seed companies established under the Agricultural Quality Improvement Project. Both buy elite seed from the Cambodian Agricultural Research Development Institute and multiply the seed material through contract farmers according to agreed husbandry protocols. Seed is dried and packaged for sale to farmers. High seed prices compared with traditional varieties and farmers’ perception of insignificant yield gains constrain demand. Seed quality is often poor and prices are high. Seed selection is also poor, and the testing and certification system is weak. Private sector participation in seed production and multiplication is limited. 11. Although fertilizer can be a remedy for nutrient deficiency of soil (Table 2.1), Cambodia applies the least compared to its neighbors, Thailand and Viet Nam. Fertilizer consumption increased significantly from a low base in the 1980s and early 1990s when only about 31,000 tons of fertilizers were imported annually.6 Fertilizer demand is currently estimated at estimated at 130,000 tons. Imports from Viet Nam and Thailand account for 70% of the supply. However, farmers do not use fertilizer at the appropriate time or in the right amounts. Fertilizer is overused 5 Practical Action. 2009. Rice Fish Culture. Rugby, UK. http://practicalaction.org/print/technology?id=ricefishculture

(accessed on 20 August 2009). 6 Koma, Yang Saing. Undated. Land and Agriculture in Cambodia. Royal University of Agriculture of Chamkar Dong.

Japan International Volunteer Centre. Phnom Penh. http://www.unescap.org/rural/doc/sads/cambodia.PDF (accessed on 20 August 2009).

Appendix 2 30

during dry season when the farm gate price of paddy is lower, raising questions about the economics of fertilizer use. In some areas, extension agents are encouraging farmers to shift to organic fertilizer. This is environmentally sound, but chemical fertilizer is still the preferred way to address the nutritional deficiency of soil and increase yield. Some farmers complain about the deterioration of soil quality from fertilizer use, i.e., soil becoming hard and acidic after the increased use of fertilizer in rain-fed rice fields. This may be caused by inappropriate use of fertilizer and dilution and/or adulteration of fertilizer by traders, which is common, or it may be linked to the availability of water. The Bureau of Agricultural Materials Standards within the Ministry of Agriculture Forestry and Fisheries was established in October 1998. It was to provide a regulatory framework to protect farmers and other users of seeds, fertilizers, pesticides, veterinary medicines, feeds, and feed additives from adulteration, commercial exploitation, and dangers to health as a result of low-quality products and inappropriate packaging. Nevertheless, unmarked and concentrated chemicals are in the market, and adulteration of products continues. 12. Several issues need to be considered with respect to chemical use in agriculture in Cambodia. Farmers do not use much pesticide, insecticide, and herbicide. Chemical use, which depends on the cropping system, is heavily concentrated in commercial vegetable and dry-season rice production. A minority of farmers apply insecticide to their fields in the monsoon season. In commercial vegetable growing, all farmers use pesticides. Most pesticides available and commonly used are hazardous to human health and harmful to aquatic life, and they pose a risk of pesticide residue remaining in food because the period between harvesting and use is short. In general, the price of pesticides and other chemicals is high, while quality is poor. Inadequate repacking and sale of expired pesticides, as well as adulteration, are common. Quality control, safety regulations, and the environmental protection systems are weak. Farmers are also handicapped by a lack of Khmer labeling on imported insecticide packages. 13. Agricultural research continues to be constrained by a lack of funds, skills, facilities, and information management systems. Without continued and longer-term development partner support, ineffective service delivery will undermine both research and extension programs. Agricultural research lacks an integrated information management system. The Cambodian Agricultural Research Development Institute has some capacity for rice research, but resources are lacking to retain its qualified staff and carry out the mandated research program. Its research capacity is weak for non-rice crops, fishery, livestock, and forestry subsectors. The Rubber Research Institute fills the gap for rubber. Current research programs in fishery, livestock, and forestry subsectors are quantitatively and qualitatively weak. Farming systems research is lagging. Coordination among research institutes, universities, government agencies, and the private sector is poor. 14. Agricultural extension services and the research–extension–farmer–market link are weak, which restricts the flow of technologies developed through research to farmers. Extension workers are far removed from research and farmers from up-to-date market information. A link to the market is important since investment in new technology has to be justified by financial returns. Agricultural extension is not driven by demand. Farmers do not have a built-in mechanism to communicate problems to extension staff. Extension mechanisms and systems are inadequate to respond to the demands of a rapidly changing physical, social, and market environment. Product competition from neighboring countries is increasing as the free flow of agricultural products continues with minimal border control and weak enforcement or application of rules, regulations, and procedures. This makes extension for enhanced market participation difficult or impossible. Extension facilities and transport at the district and field levels are lacking, basically rendering extension services immobile and ineffective. The lack of telephone service

Appendix 2

31

creates communication problems. Extension workers have limited knowledge, and no system is in place to give them basic training and/or to upgrade their skills periodically. Each district has 4–5 staff covering as much as 10 communes, close to 100 villages, and more than 10,000 households. Communes do not have any extension presence. Women account for less than a third of extension staff. The Department of Agriculture Extension’s approach is to facilitate and coordinate the network of agents in the field. However, this seemingly useful approach is undermined by a lack of coordination among field agents, departments, and NGOs carrying out extension work. C. Government Strategy

15. The Rectangular Strategy stressed that the approach to agriculture is “to improve agricultural productivity and diversification, thereby enabling the agriculture sector to serve as the dynamic driving force for economic growth and poverty reduction.”7 In addition, the technical working group on agriculture and water of the ministries of Agriculture, Forestry and Fisheries, and Water Resources and Meteorology formulated the Strategy for Agriculture and Water 2006–2010 as required by the Second Socio-Economic Development Plan (SEDPII). In addition, the working group developed subsector action programs, including (i) institutional capacity building and management support for agriculture and water resources, food security, water resources, irrigation and land management; (ii) agricultural and water resources research, education and extension program; and (iii) agriculture and agri-business (value chain) support program. The working group on food security prepared the National Strategic Framework for Food Security and Nutrition covering 2008–2012. The stated goal of the strategic framework is that by 2012 poor and food-insecure Cambodians will have substantially improved physical and economic access to sufficient, safe, and nutritious food at all times to meet their dietary needs and food preferences for an active and healthy life. This is to be achieved through higher food production and employment creation, better natural resource management, improved food use and utilization, enhanced capacity to cope with food shocks, and policy and institutional reform. D. ADB Strategy

16. One of the pillars of ADB operations in Cambodia has been natural resource management. ADB has also made significant contributions to policy and institutional reforms in the agriculture sector. ADB-financed rural roads have strengthened market links and improved mobility. Irrigation schemes are increasing agricultural production and reducing poverty. Water supply and sanitation works have contributed to better health, while the recently completed commune council buildings will improve the operational efficiency of local authorities. ADB designed the Tonle Sap Initiative (TSI) as a long-term investment framework for the Government to coordinate development assistance in the Tonle Sap basin. Launched in October 2002, the TSI focuses on the management of the natural resources of the Tonle Sap to reduce poverty in the area while conserving resources. The Tonle Sap Basin Strategy, published in 2005, gave the ADB's country strategy and program, 2005–2009 a geographic focus8 and introduced basin-level strategic planning in Cambodia. The strategy is designed to foster, promote, and facilitate pro-poor, sustainable economic growth; improved access to assets; and better management of natural resources and the environment. Recognizing that the threats to the lake cannot all be tackled at the same time, the strategy promotes a geographic

7 Royal Government of Cambodia. 2004. The Rectangular Strategy for Growth, Employment, Equity and Efficiency

in Cambodia. Phnom Penh. http://www.cdc-crdb.gov.kh/cdc/aid_management/RGC_Rectangular_Strategy_2004.pdf (accessed 20 August 2009).

8 The Tonle Sap Basin provinces cover Banteay Meanchey, Battambang, Kampong Chhnang, Kampong Thom, Pursat, and Siem Reap.

Appendix 2 32

and temporal phasing of interventions, working on the core areas of the lake to the upper catchments over an 8-year cycle. The cycle may be repeated, building and embedding lessons from the previous iterations. 17. ADB’s country strategy and program, 2005–2009 had three components: (i) to foster broad-based private-sector-led economic growth, (ii) to pursue inclusive social development, and (iii) to strengthen governance for development. The country operations business plan, 2008–2010 seeks to realign the focus on agriculture and rural development, private sector development, and risk management through governance reform. In agriculture, the focus will shift to rural transport, rural credit, skills development, other infrastructure, rural electrification, and service delivery. In terms of country programming, major elements of sequential interventions are being conceived in (i) emergency assistance in response to the rise in global food prices, (ii) rural development, (iii) rural energy, (iv) non-farm activities, (v) rural credit, (vi) private sector development, and (vii) governance and capacity building. The sector outcomes in the current country strategy and program are (i) higher agricultural production through increasing agricultural land under irrigation and rice yield; (ii) improved market environment for private agriculture-based enterprise growth; (iii) effective decentralized rural service delivery; (iv) sustainable management and conservation of natural resources; (v) reduced economic losses from floods and droughts; (vi) deepening of the TSI as a pilot of a multisector rural poverty reduction strategy; (vi) expansion of the public financial management reform program for rural development to ensure effective delivery of agriculture and rural development, and to catalyze additional development partner support; and (v) subregional initiatives on new agriculture solutions. E. IFAD’s Strategic Objectives and Assistance

18. IFAD's country strategy, 2008–2012 has two strategic objectives: (i) sustainable livelihood opportunities for poor rural men and women in the project areas through improved access to assets and productive rural services, rural infrastructure, and markets; and (ii) promotion of pro-poor decentralization, deconcentration, and local governance for agricultural and rural development through institutional support and evidenced-based policy making. In the project provinces, IFAD-assisted projects have targeted the rural poor and used group approaches to improve agricultural productivity, increase off-farm incomes, provide much needed small-scale rural infrastructure, and thereby reduce the incidence of rural poverty. F. Project Strategy

19. The project will assist the Government in creating (i) better agricultural support services, including research, extension, and information delivery services to support higher agricultural productivity by smallholder farmers; (ii) stronger rural financial services extended to resource-poor smallholder farmers; (iii) rural infrastructure to increase agricultural production, market access, and the quality of life in rural communities; (iv) appropriate policies and regulations that support smallholder farming communities; and (v) effective project management that enables completion on time and within an agreed budget.

Appendix 3

33

EXTERNAL ASSISTANCE IN THE TONLE SAP REGION

Project Title Duration Source Objective Amount (million) Area of Operation

Environment and natural resources

Natural Resource and Environment Program

2004–2007

Danida Sustainable management of environment and natural resources

Nationwide

Master Plan of Water Resources Development in Cambodia

2006–2008

KOICA Water resources management and development

$1.5 Nationwide

Biodiversity Management and Conservation in the TSBR

UNDP and GEF

Natural resource management, resource inventories, and capacity building

Kampong Thom, Kampong Chhnang, Pursat, Battambang, Siem Reap

Mekong River Basin Wetland Conservation and Sustainable Use Program

Ongoing to 2008

UNDP, GEF, the Nether-lands

Establish a multi-sectoral planning process at national and regional levels and strengthen the policy framework for wetland biodiversity conservation and sustainable use.

$31.5 Mekong region

Technical Services Centre for Irrigation Systems, Phase I and II

2001–2005 2006–2009

JICA Build capacity of MOWRAM to design, build, and operate irrigation systems

$5.0 Nationwide with pilot areas in Pursat etc.

Water Resources Sector Project

2007 ADB, AFD

Assist the4 government in formulating an irrigation investment project , strengthening MOWRAM capacity, and establishing a Tonle Sap Basin Management Organization

$1.3 (anticipate follow-up loan for irrigation in 2010

Tonle Sap basin

Irrigation system construction and rehabilitation

Komping Pouy Irrigation Rehabilitation and Rural Development

1998–2006

JICA, APS, WFP

Improve irrigated agriculture in Komping Puoy irrigation system.

$5.6 Battambang

Multi-Purpose Water Resources Development, Krang Ponley

2004–2009

KOICA Assist the government in design and construction of the Karang Ponley irrigation system

Kampong Chhnang

Multi-purpose Dam Development, Battambang

2006–2007

KOICA Feasibility study of storage options for Stung Sangke River.

Battambang

Northwest Irrigation Sector (NWISP)

2005–2010

ADB, AFD

Irrigation systems rehabilitation and poverty reduction.

$22.6 Battambang Banteay Meanchey, Pursat, Siem Reap, Kandal

Stung Chinit Irrigation and Rural Infrastructure

2001–2006

ADB, AFD

Rehabilitation and improvement of rural infrastructure and strengthening institutional capacity for agricultural production and productivity increases.

$23.8 Kampong Thom

Appendix 3

34

Project Title Duration Source Objective Amount (million) Area of Operation

Stung Staung Water Resources Development

2005–2008

PRC Support development of irrigated agriculture.

Kampong Thom

Irrigation project FAO (funded by Italy)

$3.0 Battambang

Rural Development

Agricultural Development Support to Seila (ADESS)

2000–2006

IFAD, UNDP, AusAID

Improve food and income security for about 64,500 poor households through diversified crop and livestock production.

$10.4 Battambang Banteay Meanchey, Pursat, Siem Reap

Agricultural Productivity Improvement Program (APIP)

1997–2004

World Bank, IFAD

Develop institutional capacity at local government and community level for collection and management of agriculture related information and data.

$8.3 Nationwide

Cambodia Land Management and Administration

2002–2007

World Bank

Improve land tenure security and promote the development of efficient land markets

$33.4 Nationwide

Cambodia-Australia Agricultural Extension Project (CAAEP) Phase II

2001–2006

AusAID Develop a district-oriented agricultural extension system as a focal point for coordinating and facilitating extension services

$15.2 All Tonle Sap basin provinces and 7 others

Community-based Rural Development

2001–2008

IFAD GTZ, AusAID, WFP

Crop intensification and diversification and livestock development for rural poor.

$22.8 Kampong Thom, Kampot

Economic and Social Relaunch of the Northwest Provinces (ECOSORN)

2006–2010

EU Reduce poverty by supporting a comprehensive investment program of rural development.

€26 Battambang, Banteay Meanchey, Siem Reap

Emergency Flood Rehabilitation Project, Rural Infrastructure and Irrigation and Flood Control Components

2001–2003

ADB Restore effective irrigated agriculture in flood damaged areas.

$10.8 (irrigation and flood), $6.4 (rural infra-structure)

Tonle Sap basin provinces (except Banteay Meanchey) and 6 others

Flood Emergency Rehabilitation Project, Irrigation and Flood Control Component

2001–2004

World Bank

Restore irrigated agriculture in flood-damaged area.

$8.1 (rural infra-structure), $11.6 (irrigation and flood control)

Tonle Sap basin provinces (except Banteay Meanchey) and others

Improving the Livelihood of Poor Farmers in Southern Cambodia

2003–2008

ADB/ JFPR

Sustainable development of community-based livelihood activfities for income diversification.

$1.8 Kampong Chhnang, Kampong Thom, and 3 others

Integrated Pest Management Farmer

2003–2005

Danida Empower farmers to apply sustainable agricultural production systems through

$1.7 Battambang Banteay Meanchey, Kampong

Appendix 3

35

Project Title Duration Source Objective Amount (million) Area of Operation

Training Project, Phase II

better integrated crop management Chhnang, Kampong Thom, and 3 others

Northeast Village Development

2002 World Bank

Promote rural development by supporting farm and off-farmproductive activities and developing basic rural infrastructure.

$6.0 Kampong Thom and 2 others

Northwestern Rural Development (NRDP)

2002–2007

ADB Reduce poverty through accelerated rural development

$35.3 Battambang Banteay Meanchey, Siem Reap and O Meanchey

Provincial and Rural Infrastructure Project (PRIP)

2004–2007 (susp-ended)

World Bank/ IDA, IFAD

Improving market access through rehabilitation and maintenance of rural roads.

$23.0 Kampong Thom, Siem Reap, and 2 others

Reducing Chronic Under-Nourishment

2002–2007

WFP Increase agricultural production by improving rural infrastructure and developing support services.

$17.5 All Tonle Sap basin provinces and 4 others

Rural Development Program

2002–2007

GTZ Promote community-based income-genrating activities and natural resource management.

$7.0 Kampong Thom, Kampot

Community-Based Rural Development Project

2001–2008

IFAD, GTZ, WFP

Increased food production and farm incomes from intensified and diversified crop and livestock farming.

$22.85 Kampong Thom, Kampot

Rural Water Supply and Sanitation

2005–2015

ADB Increased access to potable water and improved sanitation in project area.

$10.0 Tonle Sap basin provinces (excluding Banteay Meanchey)

Seila Program 1996–2007

IFAD/ World Bank, PLG, UNDP, bilateral donors, NGOs

Economic development through demand-driven investments, and institutional capacity building in rural areas and decentralization and deconcentration of services.

$45.6 in 2006

Nationwide

Support Program For the Agricultural Sector in Cambodia (PRASAC)

1995–1998, 1999–2003

EU Increase the income of farming communities and promote growth and prosperity in rural villages.

$39.0 Kampong Chhnang and 5 other provinces

Tertiary Rural Infrastructure Program (TRIP) Phases III And IV

1992–2005, 2005–2007

KfW WFP

Rehabilitate and maintain 650 km of rural roads.

$15.6 Kampong Thom, Kampong Cham

Tonle Sap Environmental Management (TSEMP)

2005–2008

ADB, GEF, UNDP

Sustainable management of natural resources and conservation of biodiversity in the Tonle Sap basin.

$18.7 Tonley Sap basin provinces

Tonle Sap Sustainable Livelihoods (TSSLP)

2006–2010

ADB, Finland

Improve livelihoods by supporting community-based sustainable economic activities and delivering required services.

$20.3 Battambang,Pursat, Siem Reap, Kampong Chhnang, Kampong Thom

Appendix 3

36

Project Title Duration Source Objective Amount (million) Area of Operation

Tonle Sap Rural Water Supply and Sanitation Sector

2006–2011

ADB Improved access to safe water and sanitation and better hygiene for rural population.

$18.0 Battambang, Pursat, Siem Reap, Kampong Chhnang, Kampong Thom

Allocation for Social and Economic Development

2008–2013

World Bank

Improve the process for identification and use of state lands for eligible poor and landless people.

$11.5 Kratie, Kampong Cham, Kampong Thom

Empowerment for the Poor in Siem Reap

2007–2008

World Bank

Formulation of a project for the empowerment of the poor in Siem Reap province and improve their livelihoods.

$0.99 Siem Reap

Cambodia Agriculture Value Chain Program

2007–2012

AusAID Accelerated growth in the value of agricultural production and smallholder income in selected provinces.

A$45 Kampong Thom, Kampot, Takeo

Northwest Irrigation Sector project

2004–2010

AFD Improvement of the legal framework for irrigation schemes, definition of an irrigation policy, increase yields in more than 20,000 ha.

€4 Banteay Meanchey, Battambang, Pursat, Siem Reap

ADB = Asian Development Bank, AFD = Agence Française de Développement, APS = Associazione per la Partecipazione allo Sviluppo (Italian NGO), AusAID = Australian Agency for International Development, CIDA = Canadian International Development Agency, Danida = Danish International Development Agency, EU = European Union, FAO = Food and Agriculture Organization of the United Nations, FWUC = farmer water user committee, GEF = Global Environment Facility, IDA = International Development Association, IFAD = International Fund for Agricultural Development, JFPR = Japan Fund for Poverty Reduction, JICA = Japanese International Cooperation Agency, km = kilometer, KOICA = Korean International Cooperation Agency, MOWRAM = Ministry of Water Resources and Meteorology, NGO = nongovernment organization, PLG = Partnership for Local Governance, PRC = People's Republic of China, TA = technical assistance, UNDP = United Nations Development Programme, WFP = World Food Program. Source: Asian Development Bank estimates.

A. Institutional Arrangements and Processes for Development Coordination 1. The Government Donor Coordination Committee (GDCC) meets quarterly. ADB, World Bank, the UN agencies and bilateral development partners participate with senior Government representatives. Minutes of the fourteen meetings held since December 2004 are available on the internet.1 The GDCC has a number of technical working groups (TWG), including: (i) Partnership and Donor Harmonization; (ii) Agriculture and Water, (iii) Food security and nutrition; Decentralization and Deconcentration, and (iv) Progress and Implementation of the Joint Monitoring Indicators. ADB Cambodia Resident Mission (CARM) and Manila based staff participate in the technical working group meetings. B. Achievements and Issues 2. During processing the Project design was discussed with the TWG on Decentralization and Deconcentration to ensure the project was consistent with the expected developments in the Government's program for democratic develop at subnational level. The TWG members reviewed the Project design and provided constructive suggestions. These have been incorporated in the project documents.

1 http://www.cdc-crdb.gov.kh/cdc/gdcc/default.htm (accessed 20 October 2009).

Appendix 4

37

DETAILED COST ESTIMATES Table A4.1: Detailed Cost Estimates by Expenditure Category

(KR Million) ($ '000) % Total BaseItem Local Foreign Total Local Foreign Total Costs

I. Investment Costs A. Civil Works 4,858.6 43,727.0 48,585.6 1,156.8 10,411.2 11,568.0 22.3B. Livelihood Groups Input (LIGs) 2,633.1 23,698.1 26,331.2 626.9 5,642.4 6,269.3 12.1C. Extension Services 3,036.6 27,329.4 30,366.0 723.0 6,507.0 7,230.0 13.9D. Rural ICT

a. Equipment 860.6 7,745.2 8,605.8 204.9 1,844.1 2,049.0 3.9b. Training and Capacity Building 679.6 6,116.0 6,795.6 161.8 1,456.2 1,618.0 3.1c. System Operations 1,142.2 10,280.1 11,422.3 272.0 2,447.6 2,719.6 5.2

Subtotal 2,682.4 24,141.3 26,823.7 638.7 5,747.9 6,386.6 12.3E. Equipment and Furniture

1. Equipment 294.8 2,653.6 2,948.4 70.2 631.8 702.0 1.42. Furniture 31.3 282.0 313.3 7.5 67.1 74.6 0.1

Subtotal 326.2 2,935.5 3,261.7 77.7 698.9 776.6 1.5F. Vehicles 0.0

a. Four Wheel Drive Vehicles 75.6 680.4 756.0 18.0 162.0 180.0 0.3b. Motorcycle Vehicles 423.4 3,810.2 4,233.6 100.8 907.2 1,008.0 1.9

Subtotal 499.0 4,490.6 4,989.6 118.8 1,069.2 1,188.0 2.3G. Capacity Development and Training

a. For Policy and Institutional Reforms 291.9 2,627.1 2,919.0 69.5 625.5 695.0 1.3b. For Livelihood Groups 291.2 2,621.2 2,912.4 69.3 624.1 693.4 1.3c. For Project Management 302.4 2,721.6 3,024.0 72.0 648.0 720.0 1.4

Subtotal 885.5 7,969.9 8,855.4 210.8 1,897.6 2,108.4 4.1H. Surveys, Monitoring, and Auditting

a. Surveys 50.4 453.6 504.0 12.0 108.0 120.0 0.2b. Monitoring 669.1 6,021.5 6,690.6 159.3 1,433.7 1,593.0 3.1c. Auditing 102.9 926.1 1,029.0 24.5 220.5 245.0 0.5

Subtotal 822.4 7,401.2 8,223.6 195.8 1,762.2 1,958.0 3.8I. Consulting Services

1. a. International Consultants 638.4 5,745.6 6,384.0 152.0 1,368.0 1,520.0 2.92. b. National Consultants 1,103.8 9,933.8 11,037.6 262.8 2,365.2 2,628.0 5.1

Subtotal 1,742.2 15,679.4 17,421.6 414.8 3,733.2 4,148.0 8.0Total Investment Costs 17,485.9 157,372.7 174,858.5 4,163.3 37,469.7 41,633.0 80.2II. Recurrent Costs

A. Incremental Staff a. At Central Level 3,051.7 0.0 3,051.7 726.6 0.0 726.6 1.4b. At Provincial Level 677.4 0.0 677.4 161.3 0.0 161.3 0.3c. At District Level 6,997.5 0.0 6,997.5 1,666.1 0.0 1,666.1 3.2d. At Commune Level 17,490.8 0.0 17,490.8 4,164.5 0.0 4,164.5 8.0

Subtotal 28,217.4 0.0 28,217.4 6,718.4 0.0 6,718.4 12.9

B. Operation and Maintenance (O&M)a a. Vehicle Operating Costs 4,598.6 0.0 4,598.6 1,094.9 0.0 1,094.9 2.1b. Per diem and Travel Allowance 3,410.1 0.0 3,410.1 811.9 0.0 811.9 1.6c. Office Operating Costs 6,978.4 0.0 6,978.4 1,661.5 0.0 1,661.5 3.2

Subtotal 14,987.2 0.0 14,987.2 3,568.4 0.0 3,568.4 6.9Total Recurrent Costs 43,204.6 0.0 43,204.6 10,286.8 0.0 10,286.8 19.8Total Baseline Costs 60,690.5 157,372.7 218,063.1 14,450.1 37,469.7 51,919.8 100.0

Physical Contingencies 2,674.3 6,464.4 9,138.8 636.7 1,539.2 2,175.9 4.2Price Contingencies 4,119.2 535.2 4,654.5 980.8 127.4 1,108.2 2.1

Total Project Costs 67,484.0 164,372.3 231,856.4 16,067.6 39,136.3 55,203.9 106.3Interest During Implementation 0.0 408.9 408.9 0.0 97.4 97.4 0.2

Total Costs to be Financed 67,484.0 164,781.2 232,265.2 16,067.6 39,233.6 55,301.2 106.5a No O&M is included for infrastructure to be invested. Sources: Asian Development Bank estimates.

Table A4.2: Detailed Cost Estimates by Financiers ($'000)

The Government ADB Loan ADB Grant IFAD Loan IFAD Grant Finland Grant Total Duties andItem Amount % Amount % Amount % Amount % Amount % Amount % Amount % Taxes

I. Investment Costs A. Civil Works 1,932.5 15.9 3,302.6 27.2 3,513.0 28.9 1,699.2 14.0 1,699.2 14.0 0.0 0.0 12,146.4 22.0 1,214.6B. Livelihood Groups Input (LIGs) 658.3 10.0 0.0 0.0 3,554.7 54.0 1,184.9 18.0 1,184.9 18.0 0.0 0.0 6,582.8 11.9 658.3C. Extension Services 759.2 10.0 0.0 0.0 4,099.4 54.0 1,366.5 18.0 1,366.5 18.0 0.0 0.0 7,591.5 13.7 759.2D. Rural ICT

a. Equipment 204.9 10.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,844.1 90.0 2,049.0 3.7 204.9b. Training and Capacity Building 161.8 10.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,456.2 90.0 1,618.0 2.9 161.8c. System Operations 272.0 10.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2,447.6 90.0 2,719.6 4.9 272.0

Subtotal 638.7 10.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5,747.9 90.0 6,386.6 11.5 638.7E. Equipment and Furniture

1. Equipment 74.1 10.0 0.0 0.0 666.9 90.0 0.0 0.0 0.0 0.0 0.0 0.0 741.0 1.3 74.12. Furniture 7.8 10.0 0.0 0.0 70.6 90.0 0.0 0.0 0.0 0.0 0.0 0.0 78.4 0.1 7.8

Subtotal 81.9 10.0 0.0 0.0 737.5 90.0 0.0 0.0 0.0 0.0 0.0 0.0 819.5 1.5 81.9F. Vehicles

a. Four Wheel Drive Vehicles 19.0 10.0 0.0 0.0 171.3 90.0 0.0 0.0 0.0 0.0 0.0 0.0 190.3 0.3 19.0b. Motorcycle Vehicles 105.9 10.0 0.0 0.0 952.8 90.0 0.0 0.0 0.0 0.0 0.0 0.0 1,058.6 1.9 105.9

Subtotal 124.9 10.0 0.0 0.0 1,124.1 90.0 0.0 0.0 0.0 0.0 0.0 0.0 1,249.0 2.3 124.9G. Capacity Development and Training

a. For Policy and Institutional Reforms 70.8 10.0 0.0 0.0 637.2 90.0 0.0 0.0 0.0 0.0 0.0 0.0 708.0 1.3 70.8b. For Livelihood Groups 72.8 10.0 0.0 0.0 655.3 90.0 0.0 0.0 0.0 0.0 0.0 0.0 728.1 1.3 72.8c. For Project Management 76.6 10.0 0.0 0.0 689.8 90.0 0.0 0.0 0.0 0.0 0.0 0.0 766.4 1.4 76.6

Subtotal 220.2 10.0 0.0 0.0 1,982.2 90.0 0.0 0.0 0.0 0.0 0.0 0.0 2,202.5 4.0 220.2H. Surveys, Monitoring, and Auditting

a. Surveys 12.9 10.0 0.0 0.0 69.7 54.0 23.2 18.0 23.2 18.0 0.0 0.0 129.1 0.2 12.9b. Monitoring 169.9 10.0 0.0 0.0 917.2 54.0 305.7 18.0 305.7 18.0 0.0 0.0 1,698.6 3.1 169.9c. Auditing 26.4 10.0 0.0 0.0 142.4 54.0 47.5 18.0 47.5 18.0 0.0 0.0 263.8 0.5 26.4

Subtotal 209.1 10.0 0.0 0.0 1,129.4 54.0 376.5 18.0 376.5 18.0 0.0 0.0 2,091.4 3.8 209.1I. Consulting Services

1. a. International Consultants 160.9 10.0 0.0 0.0 1,448.2 90.0 0.0 0.0 0.0 0.0 0.0 0.0 1,609.1 2.9 160.92. b. National Consultants 280.6 10.0 0.0 0.0 2,525.4 90.0 0.0 0.0 0.0 0.0 0.0 0.0 2,806.0 5.1 280.6

Subtotal 441.5 10.0 0.0 0.0 3,973.6 90.0 0.0 0.0 0.0 0.0 0.0 0.0 4,415.1 8.0 441.5Total Investment Costs 5,066.3 11.7 3,302.6 7.6 20,113.9 46.3 4,627.0 10.6 4,627.0 10.6 5,747.9 13.2 43,484.7 78.6 4,348.5II. Recurrent Costs

A. Incremental Staff a. At Central Level 0.0 0.0 0.0 0.0 578.9 70.0 124.1 15.0 124.1 15.0 0.0 0.0 827.0 1.5 0.0b. At Provincial Level 0.0 0.0 0.0 0.0 128.5 70.0 27.5 15.0 27.5 15.0 0.0 0.0 183.6 0.3 0.0c. At District Level 0.0 0.0 0.0 0.0 1,330.2 70.0 285.0 15.0 285.0 15.0 0.0 0.0 1,900.3 3.4 0.0d. At Commune Level 0.0 0.0 0.0 0.0 3,317.4 70.0 710.9 15.0 710.9 15.0 0.0 0.0 4,739.2 8.6 0.0

Subtotal 0.0 0.0 0.0 0.0 5,355.1 70.0 1,147.5 15.0 1,147.5 15.0 0.0 0.0 7,650.1 13.8 0.0B. Operation and Maintenance (O&M)a

a. Vehicle Operating Costs 124.7 10.0 0.0 0.0 561.2 45.0 280.6 22.5 280.6 22.5 0.0 0.0 1,247.1 2.3 124.7b. Per diem and Travel Allowance 92.6 10.0 0.0 0.0 416.7 45.0 208.3 22.5 208.3 22.5 0.0 0.0 926.0 1.7 92.6c. Office Operating Costs 189.6 10.0 0.0 0.0 853.2 45.0 426.6 22.5 426.6 22.5 0.0 0.0 1,896.0 3.4 189.6

Subtotal 406.9 10.0 0.0 0.0 1,831.1 45.0 915.5 22.5 915.5 22.5 0.0 0.0 4,069.1 7.4 406.9Total Recurrent Costs 406.9 3.5 0.0 0.0 7,186.1 61.3 2,063.1 17.6 2,063.1 17.6 0.0 0.0 11,719.2 21.2 406.9Total Project Costs 5,473.2 9.9 3,302.6 6.0 27,300.0 49.5 6,690.0 12.1 6,690.0 12.1 5,747.9 10.4 55,203.9 99.8 4,755.4

Interest During Implementation 0.0 0.0 97.4 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 97.4 0.2 0.0Total Disbursement 5,473.2 9.9 3,400.0 6.1 27,300.0 49.4 6,690.0 12.1 6,690.0 12.1 5,747.9 10.4 55,301.2 100.0 4,755.4 a No O&M is included for infrastructure to be invested. ADB = Asian Development Bank; IFAD = International Fund for Agriculture and Development; O&M = operation and maintenance. Source: Asian Development Bank estimates.

38 A

ppendix 4

Appendix 5

39

IMPLEMENTATION ARRANGEMENTS

1. Project management. The Ministry of Agriculture, Forestry and Fisheries (MAFF) will execute the Tonle Sap Poverty Reduction and Smallholder Development Project and will also be an implementing agency. The Project will be managed by a development coordination unit (DCU) housed in the MAFF secretary general’s office. The DCU will be responsible for (i) managing the Project’s planning, budgeting, and reporting in line with the Asian Development Bank (ADB) and IFAD financing agreements; (ii) opening and maintaining project accounts in a commercial bank following Ministry of Economy and Finance (MEF) approved procedures; (iii) preparing timely withdrawal applications for submission to MEF, and onward to ADB and IFAD, for reimbursement, based on the financial statements and requests for reimbursement from the implementing agencies; (iv) processing the procurement of goods and services in cooperation with the implementing agencies following procedures acceptable to the cofinanciers (ADB, IFAD, and others); (v) appointing an independent auditor acceptable to the cofinanciers (within 90 days of loan or grant effectiveness) and with terms of reference acceptable to the cofinanciers; (vi) establishing within 6 months of loan effectiveness a monitoring and evaluation (M&E) system (including the baseline, midterm, and project completion reviews), satisfactory to the cofinanciers, including reviewing and consolidating provincial annual work plan and budgets and the implementing agencies’ progress and financial reports; (vii) disseminating project reports to ADB, IFAD, and other stakeholders; (viii) assisting and advising, as required, the four provinces in implementing project activities, including channeling the Project’s funds following the agreed upon project procedures and in line with Government policies; and (ix) providing secretariat support to the project steering committee. The terms of reference of DCU staff are in Supplementary Appendix G. 2. Project steering committee. To enable effective Government oversight of the project, an innovative steering committee arrangement is proposed, which is expected to provide guidance to the executing and implementing agencies without creating excessive additional institutional burden. The Council for Agriculture and Rural Development (CARD) will handle the steering committee functions as part of its regular meetings. CARD will consider project matters quarterly to (i) ensure project implementation is consistent with relevant Government policies, as well as decentralization and deconcentration action plans; (ii) endorse the Project’s consolidated annual work plan and budget; (iii) coordinate and monitor project implementation, including approval of periodic project performance evaluations; and (iv) provide policy guidance in accordance with the Government's Rectangular Strategy1 the agriculture and water strategy framework, and the decentralization and deconcentration reform and action plan. The Supreme National Economic Council will provide CARD, in its role as the steering committee, guidance on policy reforms supported by the Project. 3. Implementing agencies. The Project will fund advisory staff at national level in each implementing agency. The National Committee for Sub-National Democratic Development Secretariat (NCDDS) will ensure that project implementation at the subnational level is aligned with the Government’s decentralization and deconcentration systems and procedures, and will manage the associated fiduciary risks. Project-financed activities and staff will be contracted and accounted for by the province, district, or commune council and administration consistent with their functional responsibilities. Initially the Project will use subnational planning, contracting, procurement, and financial management systems and procedures approved under 1 Royal Government of Cambodia. 2004. The Rectangular Strategy for Growth, Employment, Equity and Efficiency in

Cambodia. Phnom Penh. http://www.cdc-crdb.gov.kh/cdc/aid_management/RGC_Rectangular_Strategy_2004.pdf (accessed 20 August 2009).

Appendix 5

40

the Tonle Sap Sustainable Livelihoods Project 2 which were adapted from the Commune/ Sangkat Project Implementation Manual. 3 The Project will support the Government in implementing regulations and associated administrative and operational procedures for province and district councils and their administrations to manage and administer their functional responsibilities as they pertain to the Project. 4. The MAFF will manage policy formulation, ensure project activities are consistent with national agricultural policies and guidelines, and provide technical support to province and district agricultural officers to promote effective delivery of agricultural services to improve productivity. 5. To scale up of information and communication technology (ICT) applications for rural development, agricultural extension services, and market information, the National Information and Communication Technology Development Authority (NIDA) will coordinate national and provincial activities. 6. Province. The Project will provide funding to the four provincial councils and their administrations to plan and manage their assigned functions to implement project activities agreed upon in the annual province work plan and budget. This will include funds to (i) contract appropriate Government line agencies to deliver services, including training in response to district and commune work plans; (ii) support three national consultants to join the core province advisor team under the management of the senior provincial program advisor—one management advisor to assist project management, coordination, training, monitoring, and reporting; one local government finance systems advisor to assist the Government in establishing and embedding local government financing systems and procedures at province, district, and commune levels; and one agriculture extension advisor to technically backstop, train, and monitor district agriculture extension teams and commune extension workers; (iii) two province facilitators to backstop, train, and monitor district- and commune-level planning, coordination, and investment implementation; (iv) a finance unit staff member to consolidate commune and district financial reports, and to provide training in financial management systems; and (v) a contract administration officer to help the province administration manage provincial services and provide technical support to district and commune levels. The terms of reference of provincial, district, and commune support staff are in Supplementary Appendix H. 7. District. The Project will support district councils and their administrations in planning and managing their assigned functions to implement project activities agreed upon in the annual district work plan and budget. The district council administrations will contract district-level staff to provide technical support (including extension, training, monitoring, and facilitation) to the commune level. To assist the district council, the Project will fund in each district (i) one facilitator to support commune-level planning and management (including the commune operations officer); (ii) one finance unit staff to support district and commune financial management capacity; (iii) a five-person district agricultural extension team (four agriculture staff of different disciplines and one women’s affairs staff) to technically backstop commune extension workers, and to provide contracted extension services; (iv) operational costs of the technical support unit to provide technical services to commune councils for infrastructure design, contracting, and monitoring of investments financed by project contributions to the Commune/Sangkat Fund; and (v) appropriate equipment and training.

2 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to

theKingdom of Cambodia for the Tonle Sap Sustainable Livelihoods Project. Manila. 3 NCDDS, 2009. Commune/Sangkhat Fund Project Implementation Manual. Phnom Penh (September).

Appendix 5

41

8. Commune. Commune councils will identify activities for project financing using their existing planning procedures, and will contract district and provincial line departments, nongovernment organization service providers, and/or private sector agencies to implement these activities. Rural infrastructure investments will follow Commune/Sangkat Fund procedures. The Project will fund three staff to be contracted by each council. Two commune extension workers (one male and one female per commune) will work with district agriculture extension staff to support Livelihood Improvement Groups (LIGs) and other farmers groups to plan and manage agriculture extension and investments. A commune administrative assistant (one per commune) supported by district facilitation team members will strengthen the capacity of the commune councils and the commune clerk in planning, subproject design, contract administration, financial management, accounting, monitoring, and reporting. 9. Disbursement arrangements. The Government will establish individual pass-through accounts at the National Bank of Cambodia to receive ADB, IFAD, and Government of Finland loan and grant resources. To ensure effective project implementation and timely loan disbursement, the Government of Cambodia will establish three first generation imprest accounts (FGIAs) at a commercial bank acceptable to ADB immediately after ADB has confirmed the EA has assigned accounting staff and established the agreed accounting procedures. The DCU, located at the MAFF, will administer the FGIAs.4 The first FGIA (account A) will be established for pooled resources from (i) ADB grant, (ii) IFAD loan and grant, and (iii) Government counterpart resources to finance the DCU and MAFF implementation activities. The second FGIA (account B) will be established for pooled resources from (i) ADB loan; (ii) ADB grant; (iii) IFAD loan and grant; and (iv) the Government counterpart resources to finance the NCDDS-managed activities, including block grants administered by the commune councils. The third FGIA (account C) will be established for pooled resources from (i) Government of Finland grant, and (ii) Government counterpart resources to finance the NIDA-managed activities. ADB will provide disbursement administration services for the IFAD loan and grant, and will administer the Government of Finland grant. All withdrawal applications will be sent to ADB for processing. The MAFF will prepare separate withdrawal applications for each financing sources. The imprest account ceilings for the FGIA will be set at the lower of 6 months of estimated expenditures to be funded through each FGIA from each fund source, or 10% of the resource allocations: (i) $1.59 million (ADF grant of $0.94 million , IFAD loan and grant of $0.46 million, and Government counterpart funds of $0.19 million) for account A; (ii) $2.63 million (ADF loan of $0.18 million, ADF grant of $1.45 million, IFAD loan and grant of $0.71 million, and Government counterpart funds of $0.29 million) for account B; and (iii) $630,000 (Government of Finland grant of $567,000 and Government of Cambodia counterpart funds of $63,000) for account C. The imprest account ceilings will be monitored and updated every 6 months based on the next 6 months of estimated expenditures of project implementation. Funds will flow to the implementing agencies to finance the activities they are individually responsible for. ADB will make direct payments from the ADF grant resources for agreed upon consulting services. 10. For transparency of operations, and to simplify the MAFF's task of reconciliation of expenditures with fund sources, three second generation imprest accounts (SGIAs) with pooled funds will be established at a commercial bank acceptable to ADB immediately after ADB has confirmed the IA has assigned accounting staff and established the agreed accounting procedures. The accounts will be operated by the implementing agencies—account A1 by

4 The MAFF and related implementing agencies have implementation experience with projects financed by ADB and

other development partners. Additional training will be provided to DCU and implementing agency accounting staff to ensure full compliance with project procedures.

Appendix 5

42

ADB ADF Loan ADF Grant Finland Grant

IFAD Loan Grant

Government of Finland Grant

MEF– Five (5) Pass-Through Accounts at National Bank of Cambodia

MAFF - DCU

Pooled FGIA - B (ADF Loan, Grant, IFAD Loan, Grant, and Govt.

counterpart fund) Ceiling $2.631 million

Royal Government of Cambodia Counterpart fund

NIDA NCDDS

SGIA – C1 (Finland Grant and Govt. fund)

Ceiling $638,000

Pooled SGIA – B1(ADF Loan/Grant, IFAD Loan/Grant, and Govt.

fund)

Contractors/Suppliers

Commune Councils 4 Provincial Executive Committees (manage advanced funds at district councils)

Livelihoods Improvement Groups, and

Farmers’ Groups

Provincial and District Level

Service Providers, Agriculture District

Support Team

Note: Fund flow

Physical Document/report flow

Block Grant

Advanced payment Payment

for equipment, vehicles, and services

Payments for Rural ICT

Pooled SGIA – A1(ADF Grant, IFAD

Loan/Grant, and Govt. fund)

Ceiling $220,000

Direct Payments (ADF Grant)

Consulting Services

FGIA - C (Finland Grant and Govt. fund)

Ceiling $638,000

Pooled FGIA - A (ADF Grant, IFAD Loan,

Grant, and Govt. counterpart fund)

Ceiling $1.592 million

Figure A5: Project Funds Flow

ADB = Asian Development Bank; ADF = Asian Development Fund; DCU = Development Coordination Unit; FGIA = first generation imprest account; Govt. = Government of Cambodia; ICT = information and communication technology; IFAD = International Fund for Agricultural Development; MAFF = Ministry of Agriculture, Forestry and Fisheries; MEF = Ministry of Economy and Finance; NCDDS = National Committee for Sub-National Democratic Development; NIDA = National Information Communications Technology Development Authority; SGIA = second generation imprest account. Source: Asian Development Bank estimates.

Appendix 5

43

MAFF, account B1 by NCDDS, and account C1 by NIDA. The maximum ceiling of each SGIA will be set at the lower of 6 months estimated expenditures to be funded through the SGIA from each fund source, or 10% of the resource allocations: (i) $220,000 (ADF grant of $130,112, IFAD loan and grant of $63,770, and Government counterpart funds of $26,118) for account A1; (ii) $2.631 million (ADF loan of $0.18 million, ADF grant of $1.45 million, IFAD loan and grant of $0.71 million, and Government counterpart funds of $0.29 million) for account B1; and (iii) $630,000 (Government of Finland grant of $567,000 and Government of Cambodia counterpart funds of $63,000) for account C1. For commune development activities, each commune will open an account at a commercial bank acceptable to ADB. The commune activity plan will serve as the basis for a grant contract between a commune council and NCDDS. After the contract is signed, block grants (maximum $150,000 per commune over the project period and a maximum of $30,000 per subproject) can be released to the commune council from NCDDS. 11. FGIAs and SGIAs will be established, managed, replenished, and liquidated in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time) and the financial regulations of the Government. The accounts will be liquidated and replenished according to ADB's statement of expenditures procedures, based on withdrawal applications submitted to ADB from time to time. Each individual payment reimbursed or liquidated using the statement of expenditures procedures will not exceed the equivalent of $50,000.

PROJECT IMPLEMENTATION SCHEDULE

094 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

A. Commune Development ModuleA.1. Factor Productivity ImprovementA.1.1. Prepare commune development plans (ongoing – annual cycle)

A.1.2. Prepare plan for resource management and development (annual plan)

A.1.3. Feasibility study for small-scale water works (within 9 months)

A.1.4. Establishment and training of farmer groups (annual plan)

A.1.5. Implement civil works for resource management and development (annual plan)

A.1.6. Monitor progress of civil works for resource management and development (during construction)

A.1.7. Establish O&M mechanism for infrastructures (during implementation)

A.1.8. Organize farmer managed on-farm technology demonstrations (ongoing)

A.1.9. Establish adaptive research centers in each commune (within first year)

A.1.10. Procurement and distribution of inputs, implements and equipment (annual plan)

A.1.11. Award contract to MAFF/NGO/Private for technical service (annual)

A.1.12. Recruit/training/support for CEWs (annual plan)

A.1.13. Organize vaccination campaign (annual plan)

A.1.14. Organize farmer education, training and technology transfer (annual plan)

A.1.15. Organize gender group/training/demonstration (annual plan)

A.2. Market Links StrengtheningA.2.1. Feasibility study for roads, market and village storage (annual plan)

A.2.2. Implement civil works for market links (annual plan)

A.2.3. Monitor progress of civil works for market links (during construction)

A.2.4. Prepare work plan for biosecurity (within 3 months and ongoing)

A.2.5. Prepare work plan for pilot rural ICT (within 3 months and ongoing)

A.2.6. Implement work plan for strengthening value chain (annual plan)

20162014 2015Activities with Milestones

2010 2011 2012 2013

44 Append

ix 6

094 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

A.3.1. Establish livelihood improvement groups (ongoing based on annual plan)

A.3.2. Prepare work plan for fishpond development (within 6 months)

A.3.3. Implement work plan for fishpond development (annual plan)

A.3.4. Prepare work plan for family livestock development (within 6 months)

A.3.5. Implement work plan for family livestock development (annual plan)

A.3.6. Identify and provide training in on- and off-farm activities (annual work plan)

A.3.7. Facilitate household access to technical and financial services (ongoing)

A.4. Improvement of Access to Local Finance

A.4.1. Conduct training of partner MFI staff (annual plan)

A.4.2. Establish commune and village based credit fund (within first year)

A.4.3. Prepare and implement a training plan for borrowers (annual plan)

A.5. Promotion of Social DevelopmentA.5.1. Prepare and implement plan for non-formal skill development and vocational education (annual plan)

A.5.2. Prepare and implment plan for formal training and skill development (annual plan)

A.5.3. Prepare and implement program for basic health and nutrition (annual plan)

A.5.4. Prepare and implement work plan for gender action plan (annual plan)

Activities with Milestones 2010 2011 2012 2013 2014 2015 2016

Append

ix 6 45

09

4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

B. Policy and institutional reform and implementation capacity developmentB.1. Policy and Institutional ReformB.1.1. Develop implementation plan and guidelines (inception phase)

B.1.2. Identify key issues for policy and institutional reforms (within first quarter)

B.1.3. Assist in drafting new laws, sub-decrees and prakas (by end of 2nd year)

B.1.4. Assist in implementing laws, sub-decrees and prakas (ongoing)

B.2. Capacity DevelopmentB2.1. Procurement of consultants (within 6 months)

B.2.2. Procurement of vehicles and equipment (within 6 months)

B.2.3. Staff and training (ongoing)

C. Project ManagementC1. Establish development coordination unit (advance action)

C.2. Establish project implementation units at MAFF, NCDDS and NiDA (advance action)

C.3. Procurement of consultants (within 6 months)

C.4. Procurement of vehicles and equipment (within 6 months)

C.5. Recruit & train project implementation staff at all levels (within first year)

C.6. Develop a methodology for poverty targeting of all project components and sub-components and operationalize these (within first year)

C.7. Develop and implement a work plan for technical support services to project activities (annual plan)

C.8. Monitor physical and financial progress (ongoing)

C.9. Undertake evaluation of project effects and impact (ongoing)

C.10. Prepare monitoring and evaluation reports on the project (monitoring reports quarterly and evaluation reports annual after midterm review) x x x x x x x x x x x x x x x x x x

C.11. Disseminate monitoring and evaluation reports widely (ongoing)

2013 2014 2015 2016Activities with Milestones

2010 2011 2012

CEW = contract extension worker; ICT = information and communication technology; MAFF = Ministry of Agriculture, Forestry and Fisheries; MFI = microfinance institution; NCDDS = National Committee for Sub-National Democratic Development Secretariat; NGO = nongovernment organization; NIDA = National Information Communications Technology Development Authority; O&M = operation and maintenance. Source: Asian Development Bank estimates.

46 Append

ix 6

Appendix 7

47

PROCUREMENT PLAN

Project Name: Tonle Sap Poverty Reduction and Smallholder Development Project

Loan and Grant Amount $: $27.30 million ADF grant $ 3.40 million equivalent ADF loan $13.38 million financed by International Fund for Agricultural Development $ 5.75 million financed by Government of Finland $ 5.28 million financed by Royal Government of Cambodia

Executing Agency: Ministry of Agriculture Forestry and Fisheries

Date of first Procurement March 2010

Date of this Procurement Plan October 2009

I. Process Thresholds, Review, and 18-Month Procurement Plan

A. Procurement Method and Thresholds

1. The following methods and thresholds will apply to the Project in the procurement of goods, works:

Method Threshold International Competitive Bidding for works Above $1,000,000 International Competitive Bidding for Goods Above $500,000 National Competitive Bidding for Works Above $50,000 and below $1,000,000 National Competitive Bidding for Goods Above $50,000 and below $500,000 Shopping for Works Below $50,000 Shopping for Goods Below $50,000 Community Participation in Procurement Below $20,000

2. The following methods and thresholds will apply to the Project in the procurement of services:

Recruitment of Consulting Firms Procurement Method Prior or Post Review Comments

QCBS Prior QCBS based on 70:30 quality and cost weighting

Individual Consultant Selection

Prior

Procurement Method Prior or Post Comments Individual Consultant selection

Prior Applied in accordance with Section 2.34, Guidelines on the Use of Consultants (2007, as amended from time to time). Government will recruit international and national persons as Project advisors through the Government Procurement Guidelines and Procedures.

QCBS = quality- and cost-based selection.

Appendix 7

48

B. ADB Prior or Post Review

Procurement of Goods and Works Procurement Method Prior or Post International Competitive Bidding for Works Prior International Competitive Bidding for Goods Prior National Competitive Bidding for Works Prior National Competitive Bidding for Goods Prior Shopping for Works Post Shopping for Goods Post Community Participation in Procurement Post

C. Goods and Works Contracts Estimated to Cost More Than $1 Million 3. Not Applicable. D. Consulting Services Contracts and International and National Service Providers

as Project Advisors Estimated to Cost More Than $100,000 4. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

General Description

Contract ($)

Recruitment Method

Advertisement Date

International or National

Assignment

Comments

Technical Assistance Consulting Services

2,421,900 QCBS: cost ratio 70:30 (through a firm)

Q4 2009 International and national

Recruitment to be done by Development Coordination Unit (DCU)

Decentralization and Deconcentration Specialist

486,800 Individual Consultant Selection

Q1 2010 International and national

Recruitment to be done by NCDDS

National service providers as Project advisors for 4 Project Provinces and NCDDS.

1,150,500 Individual Consultant Selection

Q1 2010 National Recruitment to be done by NCDDS

International and national service providers for Special Studies.

355,900 Individual Consultant Selection

To be determined

International and national

Recruitment to be done by DCU

QCBS = quality- and cost-based selection. Note: Special studies includes costs of independent monitors for confirming resettlement impact and selection criteria

from members of livelihood improvement groups. E. Goods and Works Contracts Estimated to Cost Less than $1 Million 5. The following table groups smaller-value goods and works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

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General Description

Value of Contracts ($) (cumulative)

Number of Contracts

Procurement/Recruitment Method

Comments

Equipment 741,000 Multiple contracts (10 Lots)

NCB Anticipated in Q1 2010. Procured and distributed by DCU

Furniture 78,400 Multiple contracts (5 Lots)

NCB Anticipated in Q1 2010. Procured by DCU

Vehicles 190,300 Multiple contracts (2 Lots)

NCB Anticipated in Q1 2010. Procured by DCU

Motorcycles 1,058,600 Multiple contracts (4 Lots)

NCB Anticipated in Q1 2010. Procured by DCU

Rural ICT 6,386,600 Multiple contracts

NCB Anticipated in Q1 2010 Procured by DCU

Small-Scale Civil Works (Under Commune Development Component)

12,146,400 Community Participation in Procurement (in accordance with NCDDS Project Implementation Manual procedures) or NCB or Shopping for more complex works

Anticipated to commence in early Q2 2010. Procurement by Commune Councils

DCU = Development Coordination Unit of MAFF, NCCDS = National Committee for Democratic Development Secretariat.

II. Project Procurement Plan

6. The following table provides an indicative list of all procurement (goods, works, and consulting services) over the life of the Project.

General

Description

Estimated Value ($)

(cumulative)

Estimated Number of Contracts

Procurement

Method

Domestic Preference Applicable

Comments Goods (equipment, furniture, vehicles, motorcycles, and ICT)

8,455,000 Multiple contracts (40 contracts)

NCB

Small-Scale Civil Works and service contracts (Under Commune

12,146,400 Multiple contracts (An estimated 250 contracts in 4 provinces)

Community Participation in Procurement or NCB or Shopping for more complex

Community Participation in Procurement using NCDDS Project Implementation Manual acceptable to

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General

Description

Estimated Value ($)

(cumulative)

Estimated Number of Contracts

Procurement

Method

Domestic Preference Applicable

Comments Development Module)

works ADB or Shopping for more complex works

Technical Assistance Consulting Services

2,421,900 1 QCBS Cost Ratio 70:30 (Through a Firm)

FTP Recruitment to be done by DCU

Decentralization and Deconcentration Specialist

486,800 2 Individual Consultant Selection

Recruitment to be done by NCDDS

Management Consulting Services for 4 Project Provinces

1,150,500 1 Individual Consultant Selection

Including Management Advisors, Local Government Finance Advisors, and Agricultural Extensions Specialists

Consulting Services for Special Studies

355,900 Multiple contracts (to

be determined)

Individual Consultant Selection

Recruitment to be done by DCU

FTP = full technical proposal; LCB = local competitive bidding; and QCBS = quality- and cost-based selection.

III. National Competitive Bidding Annex

7. General. The procedures to be followed for national competitive bidding shall be those set forth for the “National Competitive Bidding” method in the Government’s Procurement Manual of September 2005 issued under Decree Number 14 ANKR.BK dated 26 February 2007 with the clarifications and modifications described in the following paragraphs required for compliance with the provisions of the Procurement Guidelines. 8. Application. Contract packages subject to national competitive bidding procedures will be those identified as such in the project procurement plan. Any changes to the mode of procurement from those provided in the procurement plan shall be made through updating of the procurement plan, and only with prior approval of ADB. 9. Eligibility. Bidders shall not be declared ineligible or prohibited from bidding on the basis of barring procedures or sanction lists, except individuals and firms sanctioned by ADB, without prior approval of ADB. 10. Advertising. Bidding of NCB contracts estimated at $500,000 or more for goods and related services or $1,000,000 or more for civil works shall be advertised on ADB’s website via the posting of the Procurement Plan. 11. Anti-Corruption. Definitions of corrupt, fraudulent, collusive and coercive practices shall reflect the latest ADB Board-approved Anti-Corruption Policy definitions of these terms and related additional provisions

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12. Rejection of all Bids and Rebidding. Bids shall not be rejected and new bids solicited without ADB’s prior concurrence. 13. Bidding Documents. The bidding documents provided with the government’s Procurement Manual shall be used to the extent possible. The first draft English language version of the procurement documents shall be submitted for ADB review and approval, regardless of the estimated contract amount, in accordance with agreed review procedures (post and prior review). The ADB-approved procurement documents will then be used as a model for all procurement financed by ADB for the project, and need not be subjected to further review unless specified in the procurement plan. 14. Member Country Restrictions. Bidders must be nationals of member countries of ADB, and offered goods; works and services must be produced in and supplied from member countries of ADB.

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ECONOMIC ANALYSES A. Introduction 1. The Tonle Sap Poverty Reduction and Smallholder Development Project is designed to support the Government of Cambodia in its effort to reduce rural poverty, particularly in the Tonle Sap Basin where more than one-third of the national population lives and poverty is severe. The Project will contribute to faster income growth and improved food security of rural households through higher agricultural productivity, more diversification of household economic activities, higher access to domestic and international markets, and the creation of on- and off-farm livelihood opportunities. It was also promote affordable access to financial services. Through the implementation of the integrated commune development module, the Project will (i) improve factor productivity; (ii) improve market links; (iii) enhance livelihoods; (iv) develop and strengthen the financial market for increasing access to financial services in rural areas; and (v) improve social development and community natural resources management. The policy reform and capacity development component will help the Government to put laws and regulations in place, and create an enabling and facilitative environment for rural development. If implemented successfully, the Project will become a model for integrated rural livelihood development. B. Beneficiaries and Overall Project Benefits 2. The Project will cover four provinces in the Tonle Sap basin: Banteay Meanchey, Kampong Cham, Kampong Thom, and Siem Riep. It is expected to benefit about 630,000 households (or about 2.5 million people) in 196 communes1 in these four provinces through investments, training and capacity building, and livelihood field demonstrations and follow-ups. A majority of households in the project communes are involved in agricultural production, have less than 1.0 hectare of usable agricultural land, and are considered smallholders. 3. The Project is expected to yield major benefits, including the following:

(i) Incremental benefits from higher yields and productivity of crops and livestock resulting from use of appropriate inputs, such as seed of high-quality varieties adapted to the local conditions, appropriately managed land, fertilizers, better crop husbandry, water management techniques, access to information, and extension services.

(ii) Social and economic empowerment of the men and women in the farmers’ organizations, and local communities through capacity building and self-help groups.

(iii) Reduction in incidence of poverty resulting from formation of LIGs, whose membership will comprise members of resource-poor households. Project assistance will improve these households' food security, enable them to produce for the market, and move out of poverty. Project targeting will develop mechanisms to ensure that the poor do not exclude themselves from participation as members of the LIGs.

1 The project communes were selected through a combination of objective criteria and participatory consultation. The

initial selection of communes was based on five criteria: (i) relative poverty; (ii) development partner interventions; (iii) synergy and complementarities; (iv) growth potential by agroecological region; and (v) geographical (district territory) focus.

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(iv) Increased access to affordable capital to increase productivity. The creditworthiness of LIG members and other smallholders will improve, enabling them eventually to access credit from formal financial institutions at lower costs.

(v) Improved asset accumulation by adopting alternative livelihood opportunities, diversifying risk, and realizing higher gross margins from increased factor productivity, access to markets, and affordable finance. In the long run, smallholders will benefit from greater knowledge of household economics and entrepreneurial attitudes.

(vi) Gender actions, including development of the LIGs (Supplementary Appendix E), will increase access to assets and capacity building for women, and improve awareness of project and agency staff regarding gender issues.

(vii) Better governance at the provincial, district, commune, and village levels through the involvement of the local communities in the preparation of the CIPs and in the selection of group members.

(viii) Better rural infrastructure, including rural roads, small-scale irrigation systems, markets, and post-harvest structures will improve productivity, market links, and product quality after harvest.

(ix) Internal economic rates of returns calculated for four subprojects, chosen as representative of the whole project are 44%–50% with benefit–cost ratios of 1.5–1.6:1. Sensitivity analyses show that these results are robust with respect to an increase in capital and recurrent costs, implementation delay, and potential input- and output-related risks that would reduce project benefits.

C. Economic Analyses of Sample Subprojects

1. Methodology and Assumptions 4. Since the Project will adopt the sector financing modality, the entire scope of project activities is unknown at the design stage. Therefore, the economic analysis is conducted to evaluate the viability of the four sample subprojects selected for socioeconomic assessments during project design. The four sample subprojects are (i) Achar Lak commune, Kampong Thom; (ii) Veal Mlu commune, Kampong Cham; (iii) Anlong Samnar commune, Siem Reap; and (iv) Bos Sbov commune, Banteay Meanchey. 5. The primary objective of the economic analysis of the sample subprojects is to serve a representative evaluation of the economic viability of the whole Project given that interventions in the communes are homogeneous. Equally important, the economic (and associated financial) indicators will be used as a set of benchmarks for the selection of subproject investments eligible for Asian Development Bank (ADB) financing. The analysis placed greater emphasis on selecting appropriate subprojects because that is the key to making the whole Project economically viable. 6. The economic analyses were prepared in accordance with ADB guidelines, handbooks, and technical notes.2 The Project has an implementation period of 7 years (2010–2016), and the economic life of the project interventions has been assumed to be 20 years. An exchange

2 These include, but are not limited to, the following: (i) ADB. 1997. Guidelines for the Economic Analysis of Projects.

Manila; (ii) ADB. 2002. Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB. Manila; (iii) ADB. 2006. Handbook for Borrowers on the Financial Governance and Management of Investment Projects Financed by ADB. Manila; and (iv) ADB. 2002. Handbook for Integrating Risk Analysis in the Economic Analysis of Projects. Manila.

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rate of KR4,130 = $1 has been used.3 A discount rate of 12% has been used to estimate the net present value, and serves as a cutoff point for the economic internal rate of return (EIRR). 7. The economic analysis determined the incremental benefits attributable to the project interventions. The analysis only includes readily quantifiable benefits attributable to these interventions. Financial revenue and costs were estimated using constant January 2009 prices. Financial farm gate prices were based on findings and collated information collected during the socioeconomic surveys by the project preparatory technical assistance consultant team and the ADB fact finding mission in February 2009, together with information made available by Cambodia Rice Millers' Association. The analyses use a world price numeraire where economic prices for traded crop inputs and outputs have been based on the World Bank commodity price projections. Labor costs have been shadow-priced at 0.85 of the wage rates, while other inputs have been adjusted by the standard conversion factor of 0.90 as applicable to Cambodia. The economic viability of the Project is evaluated against standard benchmarks, i.e., EIRR less than 12%, benefit–cost ratio below 1.0, and economic net present value less than zero. 8. The economic analyses of the four sample subprojects are presented together. Detailed assumptions, financial and economic production budgets, derived economic prices, project capital and recurrent cost profiles, and benefit–cost and sensitivity analyses are presented in Supplementary Appendix K and associated Excel models.

2. Four Sample Subprojects

a. Subprojects Description 9. The four sample subprojects aim to improve production by (i) helping smallholders to gradually replace traditional cultivation methods with more efficient ones, and (ii) introducing a mix of livelihood alternatives for supplement on-farm income and to provide risk diversity. Beneficiaries are farmer households that depend on agricultural production for their livelihoods. While most household heads have had significant experience with existing production types, their awareness of and experience with agricultural best practices and market access are limited. These factors defeated their efforts to increase productivity and increase market value of the outputs. Table A8.1 outlines basic information about the four subproject sites and selected socioeconomic characteristics.

3 According to the National Bank of Cambodia, January 2009.

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Table A8.1: Basic Information of Four Sample Subprojects

Items Achar Lak Veal Mlu A. Samnar Bos Sbov1. Number of Households 1,081 1,458 1,977 2,3392. Population (people) 5,513 7,030 10,541 11,354

% Population under Poverty Line 45 58 49 523. Illiteracy (people) 133 2,125 816 1,153

Male (people) 61 810 379 480Female (people) 72 1,315 437 673

4. Shelter Profile (No. of Houses)Thatch Roof 161 637 726 1,420Tile Roof 483 263 773 34Fiber Cement Roof 55 79 4 10Zinc Roof 307 402 288 873Concrete Roof 33 2 0 0Others 42 75 186 2

5. Access to Domestic Water SourcesNo. of Households with In-house Sources 1,065 1,279 397 208No. of Households Using Sources within 150m 16 179 19 8No. of Households Using Other Sources (Pond, River, and Rain) 0 0 1,561 2,123% Access to Safe Water 15 12 6 4

6. Livestock ProductionHouseholds with Pigs and Chickens 900 439 1,302 605Households with Cows and Buffalos 200 837 781 1,428

7. % Households Directly Involved in Agricultural Production 90 95 96 97 Source: Socioeconomic surveys of 20 communes. 10. The Project aims to improve production yield and productivity, and increase the market value of existing practices, by (i) enhancing the efficiency of production factors through land management and development, and better water management; (ii) improving market links through rehabilitation and new construction of rural roads, rural markets, and village-level storage to enhance quality after harvest; (iii) providing appropriate inputs and technical support through the practices of livelihood development groups, including replacing seed varieties susceptible to pests and diseases with more tolerant seed varieties; (iv) providing applied research, extension, and market development support; (iv) providing training, capacity development, field demonstration, and follow-ups on alternative livelihood development; and (v) improving access to affordable finance. The investment costs of the four sample subprojects are outlined in Table A8.2.

Table A8.2: Four Sample Subprojects’ Investment Costs ($)

Items Achar Lak Veal Mlu A. Samnar Bos Sbov1. Factor Productivity Improvement Support 67,640 77,100 91,643 64,250

1.1. Land Management and Development 11,000 26,600 37,253 17,5001.2. Small-scale Water Management Structure 30,890 18,600 20,800 01.3. Small-Scale Rural Social Infrastructure 25,750 31,900 33,590 46,750

2. Market Links Strengthening 12,800 55,375 4,800 17,4002.1. Rural Roads 9,800 52,975 0 12,3002.1. Rural Markets 0 0 0 02.3. Village Level Storage 3,000 2,400 4,800 5,100

3. Research, Extension and Market Development Support 52,075 61,720 71,620 75,0454. Livelihood Development Support 35,960 49,950 71,663 41,0075. Borrower Training and Access to Finance 25,625 34,300 58,445 60,4006. Environmental amd Social Mitigation 3,000 3,000 3,000 3,0007. Contingencies 22,804 42,217 32,723 39,165

Total Costs 219,904 323,662 333,894 300,267Source: Asian Development Bank estimates.

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b. Subproject Benefits 11. Quantified benefits. The benefit streams of the four subprojects incorporate only incremental benefits from increased crop yields and productivity through factor productivity enhancement and capacity development interventions. The production types selected for benefit–cost analyses include recession rice, lowland rain-fed rice, lowland irrigated rice, cucumber, water melon, mung beans, napia grass, fish ponds, pig fattening, maize, soybeans, and cassava. These models were selected since these are the mainstays of smallholders in the project provinces, although the scale and scope of practices vary from one commune to another. Detailed estimations of costs and benefits of the four subprojects are in Supplementary Appendix K and in associated Excel models (provided upon request). 12. Unquantified benefits. A variety of benefits cannot be readily quantified. First, although Cambodia has been progressing on poverty reduction in recent years, poverty remains a critical problem in the project provinces. With the recent food crisis and financial crisis, the problem has become more acute. The Project will contribute significantly to ensuring food security and easing poverty of labor wage earners by increasing the availability of jobs in these localities. This will reduce the social and financial costs incurred by family members who are forced to migrate to other provinces to seek jobs. While the benefits from poverty reduction can be quantified, these may be overestimated because they may also accrue to factors other than those of the project interventions. 13. Second, although not readily quantifiable, health benefits are expected to be significant since the project interventions to improve rural water and sanitation, together with social awareness activities, will help reduce the number of cases of waterborne diseases. These benefits can be divided into two categories: resource cost savings (i.e., a reduction in out-of-pocket expenses for health care), and productivity gains (i.e., a reduction in time lost to illness that would have otherwise been used to generate income 14. Third, the Project will assist the Government in policy and institutional reform including drafting key laws and regulations. At the same time, it will strengthen the capacity of national and subnational stakeholders to implement decentralization and deconcentration policies in agriculture and rural development. In districts and communes, a comprehensive program of capacity development will help train and retrain most key personnel working in the fields supporting the development of agriculture, livestock, and aquaculture. Though difficult to quantify, the benefits from an improved legal and regulatory framework, strong and transparent governance, and comprehensive planning and management will be significant in the medium and long term. These will help to ensure that an enabling and facilitative environment will be in place for sustainable development.

c. Summary Economic Indicators

15. The EIRRs were calculated for the four sample subprojects to determine their economic viability and serve as benchmarks for subproject selection during project implementation. The results of the economic analysis for the four sample subprojects are summarized in Table A8.3. Base-case EIRRs range between 43.7% and 50.3%, while economic net present values are between $185,000 and $225,000, and benefit–cost ratios are estimated to be 1.51–1.63. These indicators suggest that the four sample subprojects examined are economically viable, with base-case EIRRs well above the 12% cutoff rate. As indicated in para. 4, the economic analysis of the four sample subprojects will serve as a representative evaluation of the whole Project. Therefore, the Project is considered economically viable, because the EIRRs exceed the

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economic opportunity cost of capital for the quantified benefits. In addition, other social, environmental, and capacity building benefits have not been quantified because of measurement difficulties and/or lack of data. Therefore, the analyses can be regarded as a conservative estimate of the overall benefits. 16. Sensitivity tests were undertaken to evaluate the robustness of the analyses and examine the consequences of changes in variables, including an increase in capital and recurrent costs, implementation delay, and potential input- and output-related risks that would reduce project benefits. The tests were undertaken with the following variables: (i) an increase of 10% in the capital costs, (ii) an increase of 10% in recurrent costs, (iii) a decrease of 10% in benefits, (iv) a decrease of 20% in benefits, and (vi) 1-year delay in benefits. The sensitivity analysis results for the four sample subprojects are outlined in Table A8.3. The sensitivity tests indicate that the subprojects are highly sensitive to a 20% reduction in benefits and 1-year delay in project implementation (and hence the realization of benefits). The analysis implies that capacity development activities for project management and implementation must be front-loaded to ensure that delays are minimized.

Table A8.3: Summary Economic Indicators for Four Sample Subprojects

Achar Lak Commune, Kampong ThomCases ENPV ($) BCR EIRR (%) SI

0. Base case 166,820 1.63 44.71. Capital Costs + 10% 152,133 1.54 36.8 0.88 113.62. Recurrent costs + 10% 154,821 1.56 41.7 0.72 139.03. Benefits decrease - 10% 123,452 1.46 33.6 2.60 38.54. Benefits decrease - 20% 80,085 1.30 25.0 2.60 38.55. Benefits delay - 1 year 114,074 1.43 24.8 2.60 ENPV = 31.6 lowerVeal Mlu Commune, Kampong Cham

Cases ENPV BCR EIRR SI 0. Base case 225,672 1.57 43.71. Capital Costs + 10% 204,055 1.49 35.6 0.96 104.42. Recurrent costs + 10% 208,013 1.51 40.5 0.78 127.83. Benefits decrease - 10% 163,828 1.42 32.3 2.74 36.54. Benefits decrease - 20% 101,985 1.26 23.6 2.74 36.55. Benefits delay - 1 year 150,594 1.38 23.9 2.74 ENPV = 33.3 lowerAnlong Samnar Commune, Siem Reap

Cases ENPV BCR EIRR SI 0. Base case 206,362 1.51 50.31. Capital Costs + 10% 184,061 1.43 37.7 1.08 92.52. Recurrent costs + 10% 188,144 1.44 45.2 0.88 113.33. Benefits decrease - 10% 145,208 1.36 33.4 2.96 33.74. Benefits decrease - 20% 84,053 1.21 22.8 2.96 33.75. Benefits delay - 1 year 132,585 1.33 23.4 2.96 ENPV = 35.8 lower Bos Sbov Commune, Banteay Meanchey

Cases ENPV BCR EIRR SI 0. Base case 185,888 1.51 46.11. Capital Costs + 10% 165,834 1.43 35.9 1.08 92.72. Recurrent costs + 10% 169,505 1.45 41.9 0.88 113.53. Benefits decrease - 10% 130,862 1.36 32.0 2.96 33.84. Benefits decrease - 20% 75,836 1.21 22.4 2.96 33.85. Benefits delay - 1 year 119,409 1.33 23.1 2.96 ENPV = 35.8 lower

SV(ENPV)

SV(ENPV)

SV(ENPV) [%]

SV(ENPV)

BCR = benefit–cost ratio; EIRR = economic internal rate of return; ENPV = economic net present value; SI = sensitivity indicator. the ratio that compares percentage change in ENPV with percentage change in a variable; SV = switching value, the percentage change in a variable sufficient to reduce ENPV to zero. Source: Asian Development Bank estimates.

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58

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Cambodia: Tonle Sap Poverty Reduction and Smallholder Development Project

Lending/Financing Modality:

Project Loan Department/

Division: Southeast Asia Department—Agriculture, Environment and Natural Resources Division

I. POVERTY ANALYSIS AND STRATEGY

A. Links to the National Poverty Reduction Strategy and Country Partnership Strategy Despite robust growth since 2000, the incidence of poverty has declined only modestly—from 39% in 1994 to 36% in 2004, according to official figures. Cambodia’s recent growth has been concentrated in urban areas and driven by the garment and tourism sectors. Poverty in Cambodia still remains predominantly rural, and most poor people live in rural areas and rely on agriculture for their livelihoods. The poverty rate ranges from a low of 2.4% in Phnom Penh to an average of 40% in rural areas, reaching 70%–80% in some areas around the Tonle Sap basin. The Asian Development Bank (ADB) country strategy and program, 2005–2009 focuses support on the Tonle Sap Basin, which it describes as "one of the poorest and environmentally most sensitive regions of Cambodia."a The need for accelerating rural development to reduce poverty is well recognized in Cambodia and prioritized in the (i) Second Socio-economic Development Plan (SEDP II), 2001–2005, which is the basis for the 2005 Poverty Reduction Partnership Agreement between the Government and ADB; (ii) National Poverty Reduction Strategy (NPRS), 2003; (iii) National Rectangular Strategy for Growth, Employment, Equity, and Efficiency, 2004; and (iv) National Strategic Development Plan (NSDP), 2006, which replaced SEDP II and NPRS and incorporates long-term targets of the Cambodian Millennium Development Goalsb (MDGs), The NSDP emphasized agriculture, rural development, and infrastructure. The Rectangular Strategy II, 2008 highlighted the role of the Government to “further develop agriculture to make it the leading sector of the national economy and the vital factor of sustainable economic growth, to expand the base of food security and to promote poverty reduction.”c An underlining theme of these strategies and policies is the Government's commitment to decentralization. The national decentralization and deconcentration framework, 2005 calls for a substantial amount of domestic resources and external aid to "be channeled directly to support newly empowered sub-national units of planning and budgeting." The decentralization and deconcentration program is a 5-year national program to establish institutional capacity at the provincial level by establishing provincial, municipal, and district councils, and channeling development spending and capacity building to all levels of the subnational governance system. The Tonle Sap Poverty Reduction and Smallholder Development Project seeks to implement the Rectangular Strategy II and decentralization and deconcentration framework. The Government's plan to empower communes to plan and implement subprojects will be consistent with the decentralization and deconcentration framework. B. Poverty Analysis Targeting Classification: Targeted Intervention (Geographic) 1. Key Issues The Project will target 156 communes in the four Tonle Sap lakeside provinces of Bantay Meanchay, Kampong Thom, Kampong Cham, and Siem Reap, where about 40% of the population live in poverty. All four provinces have poverty rates exceeding the national level of 35%: Siem Reap (52%), Kampong Thom (52%), Banteay Meanchey (37%), and Kampong Cham (37%). In half the villages in these provinces, 40%–60% of households live below the poverty line, although with variations. The 600-household survey undertaken as part of the agro-socioeconomic analysis conducted during project preparation indicates that, while poverty rates for the 20 communes surveyed averaged 51%, Tang Krasang commune of Kampong Cham had the highest poverty incidence at 93% and Poipet commune in Banteay Meanchey had the lowest at 8%. The same study indicated that 30%–40% of rural households are poor; the rate is 60%–70% for fisheries communities in the Tonle Sap basin and in coastal areas. On average, more than 50% of rural people do not grow enough rice to meet their needs. Of these, half have to make up shortfalls of 3–4 months supply. However, in many communes illness, lack of safe drinking water and livestock epidemics are identified as more major cause(s) of vulnerability than food shortages. In addition, the sense of insecurity is increased when the poor, who do not have access to microfinance institutions, need to borrow money from local money lenders at unregulated high interest rates. Poverty, as measured in terms of food security and lack of income, is related to a lack of infrastructure for increasing agricultural production and diversification, and market access; poor access to technology, extension, training, and credit; and low level of education and skills. The Project will support community-driven formulation of development plans and implementation of village-level small-scale infrastructure (waterworks, roads, village-level crop processing and packaging facilities, and markets) to ensure food security and increase market access. Good connectivity would enable government services to be delivered to rural communities; farmers to buy agricultural inputs and to market surplus produce; and rural people to more easily access health services, education, and other amenities. Other demand-driven small-scale infrastructure, such as schools, safe drinking water facilities, and toilets, will contribute to improvements in other MDG-related indicators. The Project will also assist the poor in developing skills that complement small-scale infrastructure to add value to their agricultural produce and diversify agriculture. Providing the poor with the access to financial resources will lessen their sense of insecurity and enable them to pursue new livelihood activities. Stronger farmer organizations and easier access to credit will empower the poor.

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2. Design Features. (i) Poverty indicator will be included as one of the selection criteria for project communes. (ii) When selecting beneficiaries to participate in project activities, members of poorer households will be given preference.

II. SOCIAL ANALYSIS AND STRATEGY

A. Findings of Social Analysis Land issues. Poverty is linked to lack of access to and ownership of productive land. The situation is worsening because of increasing landlessness, land grabbing, land conflict, slow processing of land titling, and degradation of forestry and fishery resources. The average size of landholdings in the four project provinces is 1.66 hectares, but the agro-socioeconomic assessment found that more than 40% of households have less than 1 hectare of usable agricultural land. One of Project's component—factor productivity development—aims to increase rice yields by as much as 30%. For landless poor, other than providing project-related jobs, the Project will aim to provide access to off-farm income-generation activities to enable them to earn a steady monthly income. Households headed by women. Cambodia has a high percentage of households headed by women. Recent census data shows that 28.6% of rural households are headed by women. The agro-socioeconomic analysis also confirmed that in 25% of communes the incidence of households headed by women exceeds 20%. Not all households headed by women are considered as poor if they own sufficient productive agricultural land, derive income from off-farm or non-farm-based activities, or adult members are working in waged employment outside the commune. However, as households headed by women get older and have fewer economically active members, their poverty becomes more deeply entrenched than for households headed by men. Ethnic minority groups. Ethnic minorities account for 2%–3% of the population of the project area. The Cham is the major non-Khmer group living in the project area. Cham live in all-Cham and mixed Cham–Khmer villages. Although the Cham are Muslim and form communities based on religious, social, and cultural practices, their livelihoods are similar to the majority Khmer population. They practice wet-rice cultivation, and are also engaged in other agricultural (livestock, fishing) and non-agricultural (business, micro-enterprise) activities. They are not usually represented in commune councils. However, poverty rates among the ethnic Cham and Vietnamese, the majority of whom are fishers living in peri-urban areas), are generally lower than among the ethnic Khmer. The ethnic Kuoy have derived their livelihoods from upland farming, hunting, and gathering. Moreover, they also rely more than the lowland ethnic Khmer on the sustainable management of natural resources. The ethnic Kuoy are well represented at the commune level.

B. Consultation and Participation

1. Provide a summary of the consultation and participation process during the project preparation. The project preparation process was geared towards developing a consensus on the proposed project design, and on necessary policy and institutional measures for effective project implementation, by involving a wide range of key stakeholders, including many ministries and agencies, development partners, nongovernment organizations, and community-based organizations at critical milestones. During this process, 55 project participatory consultations and workshops were held at the central (3), provincial (12), district (8), and commune (32) levels. This consultative process, together with the results of the agro-socioeconomic study of 20 communes, formed the foundation of detailed project design. 2. What level of consultation and participation (CandP) is envisaged during the project implementation and monitoring?

Information sharing Consultation Collaborative decision making Empowerment 3. Was a C P plan prepared? Yes No Rural infrastructure needs in communes and villages will be identified and prioritized through the decentralized 11-step commune/sangkat planning process currently used to prepare commune investment plans. This is a participatory process that involves communities in identifying their needs, and provides for their direct involvement in resource allocation, decision making, implementation, and monitoring at the local level. The Project will mobilize three commune livelihood facilitators for each commune to help commune councils design and manage interventions funded through the Project.

C. Gender and Development

1. Key Issues Women in the project area are engaged in rice planting and rice harvesting, cultivation of cash crops, raising of livestock, and collection of feed. Women and girls collect most of the fuelwood, prepare and cook food, and are the primary caregivers for young children, the infirmed, and the aged. Women on average have longer work days than men, and have less time to pursue village and commune public affairs. The social and poverty assessment conducted during project preparation found that up to 60% of cash income in many households is derived from market-based activities. Further, it found that women play a more important role in market-based activities, especially local market-based activities, than rural men. Most women interviewed are seeking to develop alternative livelihood opportunities. Typical activities engaged in by women include krama weaving and mat making, food processing, small grocery shops, village-based “fast food” restaurants, dressmaking, and beauty services. However, they are also involved in some nontraditional activities for women such as appliance and vehicle repair, masonry and plumbing work associated with the construction of latrines.

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2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process:

Gender plan Other actions/measures No action/measure The Project's gender development plan provides for full participation of women in all project activities and to benefit from these equitably. Women shall also be involved in subproject design and implementation. Women will benefit from land titling support, better access to water and inputs, training and skills development, improved market links, greater food safety, access to information and communication technology, establishment of value chain links, access to credit, skills development for on-farm and off-farm income-generating activities, processing, livestock support services, pond fishery, health and nutrition services, and safe drinking water and sanitation. The implementation arrangement and estimated costs of the gender plan have been incorporated into the overall project design and costing. The implementation schedule of the gender plan will be in line with overall implementation of the Project.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Issue Significant/Limited/ No Impact

Strategy to Address Issue Plan or Other Measures

Included in Design

Involuntary Resettlement

No impact

Subprojects with potential resettlement impact will be screened out. Individual or communities may make voluntary donations in exchange for benefits from infrastructure provided by the Project in accordance with procedural guidelines for confirming resettlement impact (Supplementary Appendix L). However, such infrastructure is determined through community consultation, facilitated by the project commune facilitation team, and not location specific.

Full Plan Short Plan Resettlement

Framework No Action Other Action

Indigenous Peoples

Beneficial impact Rural connectivity and improved quality of their agricultural products will improve ethnic minority populations’ access to markets.

Special attention will be given during planning and implementation of commune development model and training programs to ensure (i) ethnic minority people are accorded the same opportunity to participate in planning and training programs; (ii) ethnic minority people receive equitable access to inputs and credit, livelihood opportunities, and social services; and (iii) indigenous knowledge and practice is utilized in designing training programs. The Project will engage a sociologist to ensure the process and outcome.

Plan Other Action Indigenous

Peoples Framework

No Action

Labor Employment opportunities Labor retrenchment Core labor standards

No adverse impact Additional employment will be generated from infrastructure construction. Job will increase as a result of the Project's technical training regarding livelihood improvement, and on- and off-farm activities.

Plan Other Action No Action

Affordability

Not adverse impact Beneficiaries will be expected to contribute, in kind contribution of labor and materials about 10% of the cost of facilities, such as rice banks, rural road maintenance, fish pond construction and/or rehabilitation, livestock improvement.

Action No Action

Other Risks and/or Vulnerabilities

HIV/AIDS Human trafficking Others

No impact Plan Other Action No Action

V. MONITORING AND EVALUATION

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No

a ADB. 2005. Country Strategy and Program, 2005–2009: Kingdom of Cambodia. Manila. b http://www.mop.gov.kh/Default.aspx?tabid=156 (accessed 20 August 2009). c Royal Government of Cambodia. 25 September, 2008. Political Platform of the Royal Government of Cambodia of

the Fourth Legislature of the National Assembly. Phnom Penh.