World Bank Document€¦ · JSOC Joint Strategic Oversight Committee KAC Kebele Appeals Committee...

Document of

The World Bank

FOR OFFICIAL USE ONLY

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

PRODUCTIVE SAFETY NET APL III PROJECT

IDA Credit No.4666-ET, IDA Grant H529-ET

with board approval date: 10/22/2009

IDA Credit No. 5091-ET

With board approval date: 03/29/2012

and TF099450

approval date: 06/15/2011

TO THE

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

October 24, 2014

GSPDR

AFRVP

This document has a restricted distribution and may be used by recipients only in the performance of their

official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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92390 v1

2

ABBREVIATIONS AND ACRONYMS

AED Agricultural Extension Directorate

APL Adaptable Program Loan

BOARD Bureau of Agriculture and Rural Development

BOFED Bureau of Finance and Economic Development

BPR Business Process Re-engineering

CAS Country Assistance Strategy

CBHW Community Based Health Workers

CBPWDP Community Based Participatory Watershed Development Planning

CFSTF Community Food Security Task Force

CGAP Consultative Group to Assist the Poor

CIDA Canadian International Development Agency

CPAR Country Procurement Assessment Report

CRW

CSA

Crisis Response Window

Central Statistical Agency

CSRP Civil Service Reform Plan

DA

DANIDA

Development Agent

Danish International Development Agency

DCT Donor Coordination Team

DFID

DRM

UK Department for International Development

Disaster Risk Management

DRMFS Disaster Risk Management and Food Security

DRMFSS Disaster Risk Management and Food Security Sector

DS Direct Support

DWG Donor Working Group

EC European Commission

EFY Ethiopian Fiscal Year

EFSRA Emergency Food Security Reserve Administration

EIA Environmental Impact Assessment

EMCP Expenditure Management and Control Program

EMP Environmental Management Plan

EPA Environmental Protection Agency

ERR Economic Rate of Return

ESMF Environmental and Social Management Framework

EWRD Early Warning and Response Directorate

FIC Federal Information Center

FM Financial Management

FSCD Food Security Coordination Directorate

FSP Food Security Program

GDP Gross Domestic Product

GoE Government of Ethiopia

HABP Household Asset Building Program

HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome

ICB International Competitive Bidding

ICR Implementation Completion Report

3

IDA International Development Association

IFPRI International Food Policy Research Institute

IFR Interim Financial Report

IPM Integrated Pest Management

ISR Implementation Status Report

JCC Joint Coordination Committee

JRIS Joint Review and Implementation Support

JSOC Joint Strategic Oversight Committee

KAC Kebele Appeals Committee

KFSTF Kebele Food Security Task Force

LEAP Livelihood Early Warning Assessment & Protection

LIU Livelihood Integration Unit

LCS Least Cost Selection

MDG Millennium Development Goals

MDTF Multi Donor Trust Fund

MFI Microfinance Institution

MOLSA Ministry of Labor and Social Affairs

M&E Monitoring and Evaluation

MOA Ministry of Agriculture

MOFA Ministry of Federal Affairs

MOFED Ministry of Finance and Economic Development

MOU Memorandum of Understanding

MTEFF Medium-Term Expenditure and Financing Framework

NCB National Competitive Bidding

NGO Non-Governmental Organization

NRMD Natural Resource Management Directorate

OFAG

OFSP

Office of the Federal Auditor General

Other Food Security Program

PASDEP Program for Accelerated and Sustained Development to End Poverty

PASS Automated Payroll and Attendance Sheet System

PBS Protection of Basic Services

PCDP Pastoral Community Development Project

PDO Project Development Objective

PEFA Public Expenditure and Financial Accountability

PFM Public Financial Management

PPA Public Procurement Agency

PIM Program Implementation Manual

PLI Pastoral Livelihood Initiative

PSCAP Public Sector Capacity Building Project

PSNP Productive Safety Net Program

PWCU Public Works Coordination Unit

PWFU Public Works Focal Units

PWIA Public Works Impact Assessment

QCBS Quality and Cost Based Selection

RCBP Rural Capacity Building Project

RED&FS Rural Economic Development and Food Security

REPA Regional Environmental Protection Authority

RFQ Request For Quotations

4

RFSCO Regional Food Security Coordination Office

RIC Regional Information Center

RNE Royal Netherlands Embassy

RuSACCO Rural Savings and Credit Cooperative Organization

RRM Rapid Response Mechanism

RUFIP Rural Financial Intermediation Program

SEA Strategic Environmental Assessment

SIDA Swedish International Development Cooperation Agency

SIL Specific Investment Loan

SNNP

SPIF

Southern Nations and Nationalities

Strategic Program and Investment Framework

SWC Soil and Water Conservation

TA Technical Assistance

TLU Tropical Livestock Units

VLSA Village Lending and Savings Association

UN United Nations

USAID United States Agency for International Development

USD United States Dollar

WAD Women’s Affairs Department

WFSD Woreda Food Security Desks

WFSTF Woreda Food Security Task Force

WMS Welfare Monitoring Survey

WOARD Woreda Office of Agriculture and Rural Development

WOFED Woreda Office of Finance and Economic Development

WFP World Food Program

Regional Vice President: Makthar Diop

Country Director: Guang Zhe Chen

Acting Practice Manager: Manuel Salazar

Task Team Leader: Camilla Holmemo

5

RESTRUCTURING PAPER

PRODUCTIVE SAFETY NET APL III PROJECT

IDA Credit No.4666-ET, IDA Grant H529-ET

with board approval date: 10/22/2009

IDA Credit No. 5091-ET

With board approval date: 03/29/2012

and TF099450

approval date: 06/15/2011

CONTENTS

Page

PROJECT DATA SHEET……………………………………………………………… ....

A. SUMMARY………………………………………………………………….

B. PROJECT STATUS.....................................................................................................

C. PROPOSED CHANGES .............................................................................................

D. NUMBER OF PROJECT RESTRCUTURINGS…….……………………...

6

ETHIOPIA

PRODUCTIVE SAFETY NET APL III

CONTENTS

A. SUMMARY This Restructuring Paper proposes a level two restructuring of the Productive Safety Net

Program (P113220) for a reallocation of proceeds for IDA Credit No.4666-ET, IDA

Grant H529-ET and IDA Credit No. 5091-ET, a change in the frequency of interim audit

reports (this change is also proposed for TF099450) as well as a revision of the

performance targets of the Household Asset Building component.

B. PROJECT STATUS

At present the PSNP covers some 6.9 million clients in 319 chronically food insecure

rural woredas in 8 regional states in Ethiopia. This is a significant decrease in the number

of clients (700,000) from the previous year due to graduation. Overall, the project is rated

Satisfactory for Implementation Progress and for achievement of the Development

Objectives. The program has continued to show significant improvements in most of the

program components, including timeliness of transfers, public works planning and

implementation, financial management and procurement, general program management

and coordination and capacity building. However, one of the proportionally smaller

components of the program - the Household Asset Building Program (HABP) –while

showing some progress in rolling out the planned activities at the operation level, is

unlikely to achieve some of its targets as the general performance is below expectation.

The overall expenditures of the program are in line with expectations. Over 99% of the

original allocation (480 mln USD) has been disbursed and some 85% (or 92% overall)

the additional financing (370 mln USD). With more than a year of implementation

remaining it is expected that the project will be fully disbursed by the current closing date

(June 30, 2015).

The implementation performance of the PSNP is measured through an assessment of

delivery of the outputs and a critical review of the fiduciary issues in the program (such

as safeguard performance, financial management, and procurement). The Implementation

performance for the PSNP is rated as satisfactory. This rating reflects the significant

progress made in both implementation performance and substantial lessons and best

practices that have been noted during the May 2013 Joint Review and Implementation

Support (JRIS) mission. This includes a number of measures that implementing regions

have adopted including the introduction of a fixed payment schedule that has contributed

to significant improvement in timeliness of transfer. There has also been good progress in

the implementation of Public Work activities and agreed actions from the previous

review mission have been accomplished. However, while there has been remarkable

progress this year in the implementation performance of the majority of the program

activities, more effort is required to improve performance in the area of food

management, timely revision and application of cash wage rates to maintain the adequacy

7

of transfer, and the need to make adjustments in program staff incentives and logistical

arrangements for effective program monitoring.

Implementation performance for the HABP component is currently rated as moderately

unsatisfactory. A recent joint implementation support mission noted that there are still

gaps in the implementation of HABP, including: slow transition to demand driven

business plan and credit support, low credit fund allocation, rotation and disbursement for

HABP clients, and inadequate support to capacity building. There is agreement with the

client that the HABP component needs significant efforts and leadership support to

improve performance given gaps in implementation capacity at woreda level and below.

The Ministry of Agriculture will organize consultation meetings to discuss short term

measures to improve performance. In addition, GoE and DPs have agreed to further

explore the reasons for the low performance to date through a thorough program

performance review.

The overall policy environment of the program has further strengthened. The National

Disaster Risk Management policy has been approved and the related DRM Strategic

Program Investment Framework (DRM SPIF) is finalized as well. Work on the

associated legal framework is ongoing and expected to be completed in the coming

months, after which the new policy will become operational. A draft National Social

Protection policy is in its final stage and is ready for submission to the Council of

Ministers for final endorsement. The related Social Protection strategy is currently being

developed.

Recently, the GoE and DPs have reached a strategic decision to design a new phase of

PSNP/HABP program. The next generation of the program will build on the current core

functions of PSNP and HABP and will incorporate new ideas, approaches and

interventions in line with the Government of Ethiopia's (GoE) National Social Protection

Policy, Disaster Risk Management Policy, the Climate Resilience Green Economy

Strategy and the National Nutrition Program. The new phase will also put strong

emphasis on supporting the development of national systems for safety nets.

Accordingly, the necessary design process structures such as a High Level Consultative

group, Steering Committee and technical committees have been established.

C. PROPOSED CHANGES

In order to further improve implementation performance of the program the client

requested the following changes to the legal agreements:

1. Restructuring of cost categories. The current financing agreement specifies in

schedule 2, section IV- A 2 four categories of eligible expenditures, two of which

refer to safety net grants under Part 1 and Part 2 of the project. Part 1 of the

project provides support to households with adequate labor participating in Public

Works as defined in schedule 1 of the financing agreement, and the provision of

grants to labor poor households through direct support without participation in

Public Works. Part 2 of the project refers to the provision of safety net grants

8

through the risk financing facility to scale up safety net activities under Part one

of the project during the event of a shock.

As the project is nearing its completion it is proposed to amalgamate cost

category 1 and cost category 2 for P113220 into one cost category as follows:

A. New cost category 1: Safety net grants under Part 1 and Part 2 of project

P113220. This would result in the modified table of eligible categories of

expenditures for IDA credit No.4666 and H5290 presented below:

Categories of eligible expenditures as per financing agreement for IDA 4666-ET

and IDA 529-ET:

Category Amount of the

Credit Allocated

(expressed in

SDR)

IDA 4666-ET

Amount of the

Credit Allocated

(expressed in

SDR)

IDA H529-ET

Percentage of

Expenditures to be

Financed

(1) Safety Net

Grants under Part

1 of the project

31,000,000

223,500,000

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

(2) Safety Net

Grants under the

Drought Risk

Financing

Facility under

Part 2 of the

project

32,000,000

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

(3) Goods,

Consultants’

services, Audits,

Training, and

Operating Costs

under Part 3 of

the Project

9,000,000

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

(4) Goods,

Consultants’

services, Audits,

Training, and

Operating Costs

under Part 4 of

the Project

11,100,000

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

Total Amount 83,100,000 223,500,000

9

Modified table with categories of eligible expenditures for IDA 4666-ET and

IDA 529-ET:


Credit Allocated

(expressed in

SDR)

IDA 4666-ET

Amount of the

Credit Allocated

(expressed in

SDR)

IDA H529-ET

Percentage of

Expenditures to be

Financed

(1) Safety Net

Grants under Part

1 of the project

31,000,000

219,000,000

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

(2) Safety Net

Grants under the

Drought Risk

Financing

Facility under

Part 2 of the

project

32,349,000

0

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

(3) Goods,

Consultants’

services, Audits,

Training, and

Operating Costs

under Part 3 of

the Project

8,800,000

0

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

(4) Goods,

Consultants’

services, Audits,

Training, and

Operating Costs

under Part 4 of

the Project

10,951,000

0

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

(5) Safety Net

Grants under Part

1 and Part 2 of

the project

0

4,500,000

Such percentage

of Eligible

Expenditures as

the Association

may determine for

each FY

Total Amount 83,100,000 223,500,000

10

B. New cost category 1: Safety net grants under Part 1 and Part 2 of project

P113220. This would result in the modified table of eligible categories of

expenditures for IDA credit No. 5091-ET presented below:

Categories of eligible expenditures as per financing agreement IDA 5091-ET:


Credit

Allocated

(expressed in

SDR)

Percentage of Expenditures to

Be Financed

(inclusive of Taxes)

(1) Safety Net Grants under

Part 1 of the Project

187,000,000

Such percentage of Eligible

Expenditures as the

Association may determine

for each EFY and document

in a Confirmation Letter


the Drought Risk

Financing Facility under


45,200,000


Expenditures as the




(3) Goods, Consultants’

Services, Audits,

Training, and Operating

Costs under Part 3 of the

Project

3,200,000


Expenditures as the





Services, Audits,



Project

3,200,000


Expenditures as the




Total Amount 238,600,000

11

Modified table with categories of eligible expenditures for IDA 5091-ET


Credit

Allocated

(expressed in

SDR)

Percentage of

Expenditures to Be

Financed

(inclusive of Taxes)



66,000,000


Expenditures as the





the Drought Risk

Financing Facility under


33,000,000


Expenditures as the





Services, Audits,



Project

10,000,000


Expenditures as the





Services, Audits,



Project

14,500,000


Expenditures as the





Part 1 and Part 2 of the

Project

115,100,000


Expenditures as the




Total Amount 238,600,000.00

12

The proposed restructuring of the cost categories is necessary to allow for full and

optimal utilization of the available IDA project resources within the project time

frame and will provide more flexibility for annual project planning to respond to

evolving needs of the project’s client group. The ability of the project to utilize

the available resources for regular program activities will be enhanced without

compromising the ability to respond to localized shocks swiftly as and when

required.

1. Revised frequency for interim audit reports.

As outlined in schedule 2, section II-B3 the recipient needs to provide quarterly

interim audit reports which would form part of the annual audit report of the

program. The introduction of the interim audit process was mainly to improve the

timeliness of the annual audit as well as to provide regular information on internal

control weaknesses to allow program management to take appropriate action

timely. However, the interim audit system has placed an additional administrative

burden on especially the lower level administrative authorities. Since the PSNP III

became effective, out of the 10 interim audit reports already submitted to the

Bank, only one interim audit was submitted within the deadline stipulated in the

financing agreement. One of the challenges for the timely submission was the

overlap of the submission deadlines for the Interim audits, and the Interim

Financial Reports (IFRs). In addition, the coverage of the audit was not

satisfactory. As indicated in the letter submitted by Government as well as during

the various discussions held in the Joint Implementation Support Missions and

Financial Management Task Force meetings, the quarterly interim audit process

has increased the pressure on the already stretched project financial management

and independent auditing capacity. In order to further strengthen the interim

auditing process and improve the existing coverage as well as contribute to a

better and more manageable fiduciary control of the project, the client has

proposed to reduce the frequency to two audit reports per annum: one interim

audit report to be delivered not later than four months after the end of quarter 2

(i.e. by May 071) of each financial year, and one annual audit report to be

delivered not later than six months after the end of each financial year (i.e.by

January 07) which takes into account the findings of the first interim audit . The

proposed new interim report will cover quarter 1 and quarter 2 of the financial

year as well as review the systemic functionality of the financial management

system. The content of the annual audit remains unchanged.

The proposed revised frequency of the interim audit reports will better align the

project auditing system with the existing project financial management and

auditing capacity without compromising required fiduciary control functions.

1 The Ethiopian Financial Year runs from July 08 till July 07

13

2. Revised indicators for the Component 4: Support to Household Asset Building

The Household Asset Building Program (HABP) was designed to assist food

insecure households in PSNP woredas to transform their productive systems by

diversifying income sources, improving productivity and increasing productive

assets. The Program has strengthened the extension system and rural service

providers to deliver demand-driven and market-oriented assistance to food

insecure households. The intention was to achieve four outputs: (a) improved

identification and development of on- and off-farm investment and income

generating activities for food insecure households; (b) enhanced access by such

households to sustainable and multiple financial services; (c) enhanced systems

for input sourcing, production and delivery; and (d) increased access by food

insecure households to product and labor markets.

While significant progress has been made it was observed during the mid-term

review and in subsequent implementation support missions that HABP is unlikely

to achieve some of its original program targets as overall performance and

expenditure are below expectations. There has been slow transition to demand

driven approaches, low credit fund allocation and disbursement and inadequate

attention to capacity building. This is mainly attributed to capacity constraints to

implement the HABP as designed, causing delays in implementation, and the

complexities caused by the institutional and implementation arrangements of the

HABP activities. Out of the total IDA allocation of 22.5 million USD some 10.1

million (or approximately 45%) has been disbursed so far. In view of this the

program partners have reviewed the original targets and adjusted them to a more

realistic end of project level. After careful consideration and taking into account

current levels of achievements and year on year trends it is proposed to adjust the

targets for the four main component indicators as outlined in the table below.

PAD Indicator2 Unit Actual

at start

of

project(

2010)

Actual as of

Dec. 20133

Original

EoP Target

(2014)

Proposed

Revised

EoP target

PSNP households report that they have developed an on- or off-farm income generating

opportunity attributable to HABP [PDO level

#3] - Annual

% n/a 65 (Oct. 2013) 90 70

HABP beneficiaries report that they are satisfied

that their business plans reflect their priorities,

needs and capabilities [Intermediate level #21] – Bi-annual

% n/a 18 (July 2013) 80 33

Average repayment rates for HABP credit4

[Intermediate level #22]– Bi-annual

% n/a 50 (July 2013) 95 72

Credit to food insecure household delivered through MFIs, RuSACCOs and VSLAs

[Intermediate level #23] – Bi-annual

% PW-37 DS-43

48.3 (Oct. 2013) 95 60

2 As worded in the Additional Financing Project Paper of March 2012. Values used are picked from the ISR version of January 2014.

There is no difference between the indicators in the PAD, PP and latest October 2013 ISR both in wording and substance. 3 The actual values as of December 2013 refer the latest available information as of end of December or earlier. Exact timing is shown

in brackets in the table.

14

D. NUMBER OF PROJECT RESTRUCTURINGS

This is the first project restructuring.

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