Document of

The World Bank

ReportNo: 19731-RO

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$11.0 MILLION

TO

ROMANIA

FOR AN

AGRICULTURAL SUPPORT SERVICES PROJECT

December 15, 1999

Environmentally and Socially Sustainable Development Sector UnitEurope and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 24, 1999)

Currency Unit = Lei15,475 =US$ 1

US$ = 0.000 1

FISCAL YEARJanuary I - December 311

ABBREVIATIONS AND ACRONYMS

AAFS Academy of Agricultural and Forest SciencesAKIS Agricultural Knowledge and Information SystemANCA National Agricultural Advisory AgencyAREB Applied Research and Extension BoardASAL Agricultural Sector Adjustment LoanCGS Competitive Grant SchemeERR Economic Rate of ReturnEU European UnionEU-PHARE European Union Development AgencyFMS Financial Management SystemFRR Financial Rate of ReturnGDP Gross Domestic ProductLACI Loan Administration Change InitiativeMAF Ministry of Agriculture and FoodM&E Monitoring and EvaluationMOF Ministry of FinanceMRT Ministry of Research and TechnologyNARI National Agricultural Research InstitutesNARS National Agricultural Research SystemNGO Non-Governmental OrganizationNPV Net Present ValueOECD Organization for Economic Cooperation and. DevelopmentPIP Project Implementation PlanPMU Project Management UnitPSC Project Steering CommitteeTA Technical Assistance

Vice President: Johannes LinnCountry Manager/Director: Andrew N4. Vorkink

Sector Manager/Director: Joseph R. GoldbergTask Team Leader: Kundhavi Kadiresan

ROMANIAAGRICULTURAL SUPPORT SERVICES PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Government strategy 33. Sector issues to be addressed by the project and strategic choices 4

C. Project Description Summary

1. Project components 62. Key policy and institutional reforms supported by the project 93. Benefits and target population 94. Institutional and implementation arrangements 10

D. Project Rationale

l. Project alternatives considered and reasons for rejection 122. Major related projects financed by the Bank and other development agencies 123. Lessons learned and reflected in proposed project design 134. Indications of borrower commitment and ownership 145. Value added of Bank support in this project 14

E. Summary Project Analyses

1. Economic 142. Financial 143. Technical 164. Institutional 165. Social 166. Environmental assessment 167. Participatory approach 17

F. Sustainability and Risks

1. Sustainability 182. Critical risks 183. Possible controversial aspects 20

G. Main conditions

I. Effectiveness conditions 202. Other 20

H. Readiness for Implementation 20

1. Compliance with Bank Policies 21

Annexes

Annex 1: Project Design Summary 22Annex 2: Detailed Project Description 27Annex 3: Estimated Project Costs 28Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 30Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 31Annex 6: Procurement and Disbursement Arrangements 32Annex 7: Project Processing Schedule 42Annex 8: Documents in Project File 43Annex 9: Statement of Loans and Credits 44Annex 10: Country at a Glance 46

MAP(S)Not Applicable

ROMANIA

AGRICULTURAL SUPPORT SERVICES PROJECT

Project Appraisal Document

Europe and Central Asia RegionECSSD

Date: December 15, 1999 Team Leader: Kundhavi KadiresanCountry Manager/Director: Andrew N. Vorkink Sector Manager/Director: Joseph R. GoldbergProject ID: P043882 Sector(s): AE - Agricultural Extension, AR - ResearchLending Instrument: Specific Investment Loan (SIL) Theme(s): RURAL DEVELOPMENT; PUBLIC

SECTOR; PRIVATE SECTORPoverty Targeted Intervention: N

Project Financing DataI Loan C: Credit D Grant El Guarantee El Other (Specify)

For LoanslCredits/Others:Amount (US$m): 11.0

Proposed Terms: El To be defined Cl Multicurrency 1 Single currencyCl Standard Variable Cl Fixed Z LIBOR-based

Grace period (years): 5 Years to maturity: 20Commitment fee: Service charge: %

Financing Ptap: SourKe L4al F n Tti,Govemment 3.86 0.00 3.86IBRD 2.47 8.53 11.00IDAOTHER 2.96 0.00 2.96

Total: 9.28 8.53 17.82

Borrower: ROMANIAResponsible agency:MINISTRY OF AGRICULTURE AND FOODOther Agency(ies):

Estimated disbursements t Bank FYIUS$M):FY nul 200 .- 202 :2003 20 4Annual 1.0 3.5 4.5 2.0

Cumulative 1.0 4.5 9.0 11.0

Project implementation period: 2000-2004Expected effectiveness date: 05/01/2000 Expected closing date: 12/31/2004

00 CPF- .. 091998

A: Project Development Objective

1. Project development objective: (see Annex 1)

The project has two objectives: (a) increase agricultural productivity, sustainability and income byproviding immediately needed technology, information and training for private farmers andagro-processors; and (b) improve efficiency, cost effectiveness and client relevance in the management ofresearch and extension. Towards this, the project will:

(a) Support a number of priority extension and applied research activities that will quicklytransfer existing proven technology to private farmers and agro-processors;

(b) Develop an applied research and extension program through a Competitive Grant Scheme(CGS) that is responsive to the needs of a market economy and test a combination ofapproaches for upgrading agricultural extension;

(c) Build capacity within public and private sector institutions and amongst farmers toformulate, implement and monitor the research and extension services programs; and

(d) Develop an action plan for reforming the agricultural research, extension and educationsystem to be supported by investments in a possible larger project in the next phase.

2. Key performance indicators: (see Annex 1)

B: Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex I)Document number: R97-99/1 Date of latest CAS discussion: 06/03/97

The project is consistent with the Bank's Country Assiistance Strategy which identifies agricultureas one of the priority sectors on grounds of good prospects for a supply response and of progress in privatesector developmnent. Key elements of the agricultural strategy include policy changes to liberalize prices,trade and markets which are being addressed through an Agricultural Sector Adjustment Loan. Thesepolicy changes will be followed up with improvement in the sector's infrastructure which would includeupgrading of marketing and port capacity, establishment of ingproved collateral mechanism, development ofan effective and sustainable agricultural research and extension network and development of a rural financesystem. The proposed project would promote essential public and private services to support thedevelopment of research and extension services for private farmners. Improvement of services to farmershas been identified as having high priority in the Bank's sector studies.

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2. AMain sector issues and Government strategy:

Agriculture is a major contributor to Romania's economy, accounting for 20% of GDP and about35% of the total employment in the country. Romania has about 14.8 million ha of good agricultural land.Despite a rich natural resource base, Romania's agricultural production has been well below its potential.Average yields of major crops like wheat, barley, and sugarbeets have suffered. Since 1990, productivityof livestock in Romania has lagged behind that in Western Europe. The gap largely reflects differences dueto non-availability of inputs, differences in technology and economic incentives. This will require not onlythe right policy framework, which is being addressed through the Bank's Agricultural StructuralAdjustment Loan, but also improved support services to farmers. There is an urgent need for thegeneration, acquisition and dissemination of appropriate agricultural technology which will improveagriculture output and its quality.

Until 1990, agricultural land in Romania was farmed largely by state or collective farms.Following the abrupt change to a market economy, about 8.5 million ha are now farned by about 3.6million private farmers, about half of whom are members of some 16,000 family associations and 4,000agricultural societies. These farmers have little experience in operating their own farms or in making theirown agricultural decisions and therefore need technical and economic knowledge and information. Thetransition from a centrally planned to a market economy has created new conditions and challenges for theagricultural sector, including agricultural research and extension services which now require fundamentaladjustment from the pre-reform system. The existing research and extension system is inadequate to meetthe new challenges of the emerging economy.

During the 1960s, Romania made substantial investments in institutions for agricultural research.In 1997 there were 22 Central Research Institutes, 98 regional stations and 5 agricultural universities withvarying responsibility for agricultural research. Since the mid-1970s there has been little new investment inagricultural research. The agricultural research system suffers from: an emphasis on basic science overapplied research; emphasis on farm output over efficient farm production; narrowly focused scientists; lackof client orientation; professional isolation; public sector dominance; financial sustainability; and littleaccountability to beneficiaries.

In the past, technology was transferred direct from research institutes to managers and techniciansemployed by the state and collective farms. There were no extension or advisory services for privatefarmers. Today, the Ministry of Agriculture and Food (MAF) has assigned to 41 judets several thousandagriculturists with specialized technical skills, but limited diagnostic, farm management and extension skillsrelevant to assessing and serving the needs of private farmers. These staff have limited economic training toassess what support would yield the highest benefits, and lack experience working in a client-responsiveenvironment. The emerging private sector increasingly recognizes the importance of providing credibleadvice as part of good business practice but has limited experience in delivery. The farming population isnot adequately prepared to mobilize itself to formulate priority needs and to commit to individual andcollective action for improved resource management.

Government strategy for the agriculture sector is aimed at transforming existing farminghouseholds into profitable farm enterprises. Development of agricultural support services, and involvingthe private sector in providing research and extension services to meet the needs of the private farmers, arecentral to the strategy.

With the emergence of a private farming sector, agricultural research must be reoriented towardsthe technology needs of private producers. Although Romania has pioneered excellent work in basicagricultural science, there has been limited focus on adaptive research relevant to emerging private farmers.

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There is therefore an urgent need to adapt existing proven technology to support private farmers.Furthermore, advice and information to farmers is unstructured and rarely tailored to private farmer needs.The role of agricultural extension therefore needs to be rationalized and developed within a frameworkwhere the roles of the public and private sectors in technology dissemination are clearly defined.

Given the current severe budgetary limitations for both research and extension, the two aspects ofagricultural knowledge, research and extension, need to be developed in parallel so that they are closelylinked and financially sustainable. The sector is likely to face fundamental institutional change in the longterm, resulting in a reduction in the number of research institutes and a considerably smaller publicextension service. Funding levels for public extension may remain static, but implementation willincreasingly be carried out by farmer organizations in partnership with private sector operators, with anincreasing focus on client responsiveness.

Romania's accession to EU has implications for the organization and management of agriculturalresearch and extension. In the OECD countries, a large and increasing share of agricultural research andextension is managed through private input companies and farmer organizations. Farmers and processingindustries in Romania are building capacity to enter and compete in EU markets and must gain access toknowledge, skills and technologies. Only then will Romanian agriculture be competitive and efficient. Theproject's focus -on private farms, including small farms, is critical because this group urgently requiresappropriate technologies and information to adopt agricultural practices that are profitable and do notadversely affect the environment. The project would also build institutional and human capacity toundertake relevant research and extension activities to empower new farmers to meet the agricultural andenvironmental standards required by the EU. The extension and research activities proposed in the project,which will provide new technology and knowledge to the farming and agro-business community, willcomplement the EU's Special Accession Program for Agriculture and Rural Development (SAPARD) thatis aimed towards developing a competitive and self-sustaining rural sector. The SAPARD providesannually Euros 150 million in grants, a large part of it is for investment in agriculture and improvements inrural infrastructure.

3. Sector issues to be addressed by the project and strategic clioices:

Romania's agricultural research, extension and educational system faces six major challenges:(a) to re-orient the system to make it serve private agriculture based on market principles; (b) to adoptsocio-economic, ecological, and business criteria in planning, priority setting, monitoring and evaluatingagriculture knowledge system; (c) to restructure, selectively rehabilitate, decentralize and consolidate thesystem to make it efficient, effective and financially sustainable; (cl) to develop and strengthen the linkagesbetween researchers and users, and among research, extension and training activities; and (e) to facilitateincreased investment in agricultural knowledge and information system (AKIS), both public and private.

Reforming Romania's agricultural research, extension and education system will requirefundamental changes in decision making, priority setting, incentive: systems, cost effectiveness, potentialrevenue generation through cost recovery and accountability to stakeholders. These changes are long termand would require 10-15 years to achieve. As a first step, there is a need to selectively support the researchand extension system to serve private agriculture with already available technology and information. Thisis expected to bring increased productivity of crop and livestock, increased profitability through better farmmanagement and collective bargaining for inputs and markets, and increased sustainability through moreecologically-sound technologies and practices. At the same time, it is important to assist the Government ina longer term action plan to reform the agricultural knowledge system. Thus, the project has a two prongedapproach: (i) support targeted, priority activities in research and extension that will provide immediatebenefit to farmers and agro-processors which will serve as a catalyst to jump start the reform process; and

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(ii) provide assistance in developing an action plan to reform AKIS that could be supported throughinvestments in the next phase.

The proposed project constitutes a first phase in a long-term program to reform Romanianagricultural research, education and extension to respond better to newly emerging realities andopportunities. The project will fund a Competitive Grant Scheme (CGS) that is responsive to the needs offarmers and agro-processors; test a number of locally formulated projects to design, select, fund and deliverextension programs; and build capacity to create farner confidence in research and extension systems,learn from pilot experiences and feed experience gained into the reform process. The CGS should not bebeen seen as a replacement for core funding of the research complex. However, it will encouragereallocation of limited budgetary funds to relevant and effective institutions.

The CGS will encourage:

* a non-political and transparent process with participation by users of research and extension in settingthe priorities for research and extension and in deciding the resource allocation;

* increased emphasis on cost effectiveness;

* shift from basic to applied research;

- resource commitments based on monitorable outcomes;

* cooperative research/extension by multidisciplinary teams;

3 selectivity in research/extension programs;

e equitable access to research/extension funds for research institutions, extension agencies, universities,private industry and NGOs; and

* linkage with global research/extension community and private sector.

The project will design and deliver extension to private farmers and agro-processors. Suchsupport will include farm management skills, organization and mobilization of small farmers for inputsupply, mechanization and marketing, and low or reduced cost options for small farmers in crop and animalproduction and on-farm processing. The project will also help formulate, select, test and monitor ways ofextension new to Romania. The delivery mechanisms tested would include: (i) farmer to farmer extension;(ii) private-public partnerships; and (iii) mass media. A number of extension proposals have already beendeveloped by farmer groups, non-government organizations and industry associations. The extensioncontracts will explore ways to shift the cost of some advisory services from government to users, inputsuppliers and marketing organizations, and will also develop linkages among agriculture sector institutionsthat will increase the accountability and relevance of advisory services to farmers.

The Government, with encouragement of EU-PHARE, recently formalized the NationalAgricultural Advisory Agency (ANCA, Ordinance dt. November 1998), a governmental agency responsiblefor agriculture advisory services. Considering the budgetary constraints and the increasing role of theprivate sector in the provision of extension services, Government has recognized the need to keep ANCAsmall. ANCA brings together about 1,300 technical staff, mostly at communal level, who were previouslyemployed in State and collective farms. The organization will be largely decentralized with judet level staff

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being responsible for the planning and provision of extension services based on a needs assessment done ona periodic basis with farmers. Government has plans to privatize ANCA in future. In recognition of thesesignificant steps taken by the Government, the proposed project will support the extension programs ofANCA. First, ANCA and its judet and communa level offices can compete for funds from the CGS tofinance their extension plan developed for their respective areas. In addition, the project's institutionalbuilding component will support ANCA in carrying out many innovative programs, including a rapidimpact program, rural radio program, and preparation and distribution of farm management handbooks.

A strategic review of the AKIS in Romania has been completed with EU PHARE funding.The next step is to develop a well focused action plan for the AK1IS. The project will support theformulation of such a plan based on the broad strategy developed by the strategic review. Support fordeveloping an action plan and capacity to reform the Romanian A.KIS would be in the form of technicalassistance (TA) and training. Jointly with all stakeholders, the plan will develop the framework for afinancially sustainable structure for agricultural research, extension and education suitable to Romanianconditions which will lead to an investment plan to support the reforms. The action plan is expected toattract donor funds. The proposed project and the preparation of the action plan are the initial steps to setthe stage for more substantial restructuring and development of research and extension in Romania.

C: Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

The project will have two components: (i) Applied Research and Extension, and (ii) InstitutionBuilding. The first component would support by means of a Comnpetitive Grant Scheme (CGS) appliedagricultural research and extension on priority problems facing private farmers and agro-processors. Thesecond component would include assistance to administer the CGS, support to ANCA to deliver rapidimpact extension programs, develop a rural radio program, and develop and distribute farm managementhandbooks, and formulate an Action Plan for AKIS, technical assistance (TA) and training, and support forPMU to implement the project.

The CGS will support the Applied Research and Extension component. The purpose of the CGSwould be to ensure a closer association between research scientisllextension specialists and the needs of thenewly emerging private farmer in setting priorities for research/extension and in fornulating and evaluatingresearch and extension proposals. The CGS will be open to all and will extend the range of research andextension grant participants to include universities, NGOs, private industry and extension services. Theproject will provide funds based on pre-determined criteria on priority needs of farmers and agroprocessorsthat have been identified as farm management; marketing; and efficient input use/low cost options forproduction and processing. The criteria for evaluation of research proposals would include farm utility,qualifications and experience of researchers, plans for transfer of technology and environmental impact.For approved research proposals, grant funds will be provided for laboratory and field equipment,materials, vehicles, office equipment, computers, travel costs, short term training, field labor, fuel andsupplies.

The CGS for extension will support private and public sector agencies that meet the urgentextension needs of farmers. It will also test delivery channels suc]1 as farmer to farmer extension,private-public partnerships, and mass media. For extension contracts, the criteria for selection wouldinclude rapid and quantifiable impact, number of beneficiaries, private sector participation, institutionalcapacity, sustainability, replicability and environmental benefits. The project funds will assist in the

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demonstration exercises, equipment, training materials, etc. incurred by the primary agencies responsiblefor providing the extension services.

A Manual that outlines the operational details of CGS has been developed. The proposals forgrants for research and extension services will be solicited and evaluated in accordance with the principlesand procedures in the Manual.

The project will also build national capacity to deliver extension messages and conduct appliedresearch that will have rapid impact among large number of farmers. There will be support to ANCA todevelop a rural radio program and to develop and distribute farm management handbooks. There will betraining of researchers and extension specialists and limited TA for capacity building, projectimplementation and in developing an action plan for future restructuring of the research and extensionservices.

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t:00X ;' ompoen Secltollro;0! ' ~t io lac~ a

(1) APPLIED RESEARCH AND 0.0 0.0EXTENSION PROGRAM: Fund aCompetitive Grant Scheme (CGS)managed by the Agricultural ServicesBoard (ASB). Set up workingprocedures of the scheme; definepriority areas of research andextension; establish criteria, solicitproposals; screen proposals andallocate funding to those selected;monitor progress and promote thetechnology transfer of the results.

a) Applied Research - CGS AR - Research 7.43 41.7 4.46 40.5

b) Extension - CGS AE - Agricultural 7.43 41.7 4.46 40.5Extension

Assuming combination Research /Extension grants as well.

0.0 0.0

(2) INSTITUTIONAL SUPPORT 0.0 0.0

Admninister the CGS, implement the 0.0 0.0rapid impact program, develop a rural

radio program, develop and distributefarm management handbooks, developand deliver an action plan for AKIS,provide TA and training.

a) Implementation of the CGS Other Agriculture 0.68 3.8 0.50 4.5

b) ANCA Related Programs - Rapid Other Agriculture 0.90 5.1 0.47 4.3Impact leaflets, Farmer's Handbook,

and Mass Communications

c) AKIS Action Program Other Agriculture 0.19 1.1 0.17 1.5

d) Project Management Unit Other Agriculture 1.19 6.7 0.94 8.5

(includes project TA and training) l

Total Project Costs 17.82 100.0 11.00 100.0

Total Financing Required 17.82 100.0 11.00 100.0

For further details see Annexes 3 and 5.

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2. Key policy and institutional reforms supported by the project:

The project would support Government's commitment to improve the efficiency and costeffectiveness of agricultural research and extension to meet the needs of the private farming sector. TheCGS will provide real life experience which can feed into the institutional reforms for research, extensionand training in Romania over the coming years. The role of the government in research and extension willremain important but may change significantly from a staff-intensive supply driven structure to one thatsets policy and program priorities, acts as a contractor/facilitator of research and extension services onbehalf of farmers, and develops a nationwide learning capacity to benefit from pilot projects, applying thelessons learned by mainstreaming successful experiences. The CGS will help promote a transparentstructure and management of agricultural research and extension and develop greater accountability toclients. It will assist research institutions in priority setting, decentralize research and extensionmanagement and forge closer relationships between researchers, farmers, and extension workers. Theorganizational and mobilizing capacity of farmer and commodity organizations will be strengthened and theprivate sector will be contracted to provide selected services.

3. Benefits and target population:

Private farmers and agro-processors will be the main beneficiaries. Extension will provide benefitsof several types. In the first instance, farmers in the project areas will receive business and technical adviceand benefit through improvements in productivity, profitability, and sustainability. The project will alsoprovide opportunities for both commercialization and privatization of agricultural extension services. Thecompetitive selection of extension proposals will encourage greater efficiency and improved quality ofservices extended to clients, while the collaborative nature would bring beneficial synergistic and multipliereffects by networking through the whole of the AKIS rather than through organizations working inisolation.

The applied research results will lead to increased profitability, improved living standards in ruralareas and greater likelihood of farmers being able to improve their farms and businesses. In the cropsector, outcomes will include improved production efficiency through low input use and better farmmnanagement. In the livestock sector, outcomes will include better animal nutrition, management and healthand effective use of organic wastes. In both there will be improvements in product quality, with productionaimed more at meeting specific market needs and export standards.

The direct involvement of farmers in the priority setting exercise and in the allocation of resourcesof the CGS (through their farmer representatives in the ASB) will also strengthen the way in which realneeds are serviced and contribute to mobilization and organization of farmer groups, resulting in a morepowerful articulation of demand. Farmer to farmer diffusion through the rural communities will beenhanced.

The fact that both research and extension contracts are being selected and funded in response tofarmers' needs will result in greater ownership and relevance and increases in effectiveness and efficiencyof the whole system of generation, transfer, and utilization of agricultural technology and information.

Economic returns from investment in applied agricultural research (coupled with effectivetechnology transfer) can be very high, especially when starting from a relatively low technological base.The involvement of a wider range of people, especially farmers, in adaptive agricultural research willincrease the practical relevance of the national research program. Importantly, the establishment of a CGSas described, and the development of people at all levels with experience of running such a scheme, willhave long term benefits.

9g

4. Institutional and implementation arrangements:

Executing Agency: MAF

Project Coordination: The MAF will have primary responsibility for the project. A ProjectManagement Unit (PMU) in MAF will oversee overall project execution. It will have a technical team andan administrative team. The CGS will be managed by an Agricultural Services Board (ASB) establishedunder the project. The ASB will be supported by a Secretariat which will be the technical team in thePMU. ANCA, will be responsible for implementing the major programs under the institutional buildingcomponent. A Project Steering Committee (PSC), comprised of representatives from the Ministry ofFinance, MAF, ANCA and the ASB, will provide overall policy and operational guidance for the project.The PSC chaired by the MAF will provide necessary oversight and coordination and approve annualprograms and budgets, leaving endorsement of individual research and extension proposals for projectfunding to the ASB based on established criteria.

The administrative team in the PMU will report directly to the PSC and be responsible for overallproject coordination and imnplementation of training and TA. The administrative team in the PMU willundertake procurement of goods and services, accounting and financial management, monitoring andevaluation, with inputs from ASB secretariat and ANCA on technical matters. It will also assistparticipating research, extension and farmer organizations in implementing the research and extensioncontracts. The administrative team in the PMU will prepare annual work plans and define the actionsneeded to ensure timely project implementation, prepare quarterly reports for the PSC and the World Bank,and organize meetings. The PMU will be headed by a Project Director and would include specialists infinancial management, procurement, monitoring and evaluation, and support staff. The PMU will operatein association with the ASB secretariat.

The ASB will be an ad hoc body with representation from the research, extension and farmingcommunity (majority from the private sector) that will meet whenever needed (3-4 times a year), ondecisions regarding the use of the competitive research and extension grant program. The members of ASBwill not be permanent salaried staff but will be paid an honorarium for attending the ASB meetings. TheSecretariat of the ASB (which will be the technical team in the PMU) will be a technical group comprisingthree specialists, one each for research, extension and economic/sociological aspects, responsible forinviting and screening research and extension proposals. The secretariat staff will be qualified andexperienced MAF staff reassigned from other departments including ANCA. The ANCA staff in Bucharestand in the judet will be responsible for implementation of the rapid impact program, the farm managementhandbook and the radio program. Since the ANCA-led activities in the project are small, less than $1.25million, the procurement, accounting and financial management of the ANCA related project activities willalso be managed by the administrative team in the PMU.

Financial Management

The financial management arrangements of the project have been assessed as satisfactory to theBank. Annex 6 outlines the accounting and financial management system that will be used for the proposedproject. MAF's existing institutional capacity in the area of accounting and financial management isindeed limited. The government, therefore, proposes to equip PMU with modem computer equipment,upgraded accounting software, and trained staff. This will ensure not only efficient accounting andmanagement of project funds but also help MAF to build necessary institutional capacity to run theproject-assisted activities on a sustained basis, i.e., even after the PMU is closed upon completion of the

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project. The key elements of the project's accounting and financial management with implementationdetails and action plans are provided in the PIP.

The government reviewed and confirmed during negotiations its agreement to the draft CGSManual and the Project Accounting and Financial Management outlined in the PAD/PIP, including theBank loan disbursement and flow of funds mechanisms, internal controls, audit and reporting requirements.The government has appointed the core staff for the PMU including a director and three professional stafffor project accounting and financial management, procurement and monitoring and evaluation, withqualifications and experience acceptable to the Bank.

Training of PMU staff in financial and procurement procedures will be completed by projecteffectiveness. Government will open a Special Account (in US dollars) for managing withdrawals anddisbursements under the Bank loan, and a local currency project account to receive government counterpartcontribution. The government will require MOF and MAF to sign a Subsidiary Agreement; introduceinternal control procedures; and appoint an independent auditor. Formats for the annual audited financialstatements and the Project Management Reports (PMRs) have been developed and agreed with thegovernment during negotiations.

Monitoring and Evaluation Arrangements:

A well-designed monitoring and evaluation system will be critical for ensuring the project's timelyand successful implementation, and enhancing its impact by a systematic analysis of lessons learned andtheir effective dissemination. There will be three types of M&E in the project: (1) monitoring throughquarterly and progress reports prepared by the PMU, based on input provided by ASB and ANCA; (2)evaluation of the CGS funded programs to be undertaken by the ASB in conjunction with outside agencies;and (3) ex-post evaluation of the overall project by an outside agency (agricultural universities, economicinstitutes, local and foreign). The overall project evaluation will assess if project-assisted activitiesachieved intended results in terms of technology development, dissemination, and adaptation; actual andpotential impact on farm incomes; institutional capacity development; human resource development; etc.The ex-post evaluation will be a critical input in mainstreaming successful extension messages and deliverymechanisms and in designing future initiatives for strengthening and reforming research and extensionsystems.

A foreign expert would assist the PMU during Year 1 to design a simple management informationsystem for M&E, reporting formats for each component, including targeted annual performance objectivesand monitoring indicators using Annex I details as the basis. Quarterly reports will cover progress inphysical implementation, the use of project funds and the project impact. Quarterly reports will beconsolidated by the PMU and submitted to the Bank. These progress reports will also include animplementation plan and work program for the six months following the reporting period.

A mid-term review will be carried out to assess overall progress. Lessons learned withrecommendations for any improvements would be made and the project design would be adjusted, ifneeded. The MAF/PMU will also complete an Implementation Completion Report (ICR) with inputs fromthe Bank.

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D: Project Rationale

1. Project alternatives considered and reasons for rejection:

The Government initially proposed a large investment project involving provision of equipment andinputs to research institutes, and training and dissemination materials to district and commune level staff toprovide extension services to farmers. However, it was quickly agreed that such investments needed to beaccompanied by major institutional and policy reforms. It was then decided to parallel the ongoingStrategic Review of the Romranian AKIS with a modest project to respond quickly to farmers' immediateneeds through a small operation featuring the competitive grant scheme and selected institutionalstrengthening. Consideration was given to developing two LILs -- one for research and one for extension --and was rejected as this approach would not build strong linkages between the two. A LIL combining bothresearch and extension was too small for Romania to have a meaningful impact. The proposed project willdemonstrate to policy makers and practitioners new ways of responding to and servicing the research andextension needs of farmers involving both the private and public sectors. The experiences gained from thisinitiative, together with an agreed action plan, would be instrumental in reforming the agricultural research,extension and training systems. It was also considered to combine the GEF supported AgriculturalPollution Control Project, now under preparation, with the ASSP because of the complementarities betweenthe two. This again was not possible since the GEF project would include activities relating to Poldarrestoration which may not fall within the overall objectives of the ASSP. Further, the preparation of theGEF project has only started and its processing time table does not fit within the timetable planned forlaunch of the ASSP.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

'I Latest Supervision

Implementation Development

Bank-financed Progress (IP) Objective (DO)

Ag. Sector Adj. Loan (ASAL) World Bank In progress UPrivate Farmer and Enterprise World Bank Complete SSupport Project

Other development agenciesStrategic Review of AKIS EU-Phare 1998

ECU 0.5 millionEstablish National Extension Service EU-Phare 1995-96Project ECU 1.7 millionDevelopment of National Extension EU-Phare 1997-98Service Project ECU 2.0 millionEU Integration Project (Agriculture) EU-Phare 1997-98Demonstration Farms Project EU-Phare ---

ECU 1.0 millionAgribusiness Consultancy EU-Phare 1995-96Farm Producer Organizations German bilateralInstitutional Strengthening of Private Dutch bilateralAgriculture

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Agricultural Extension and Business British KHFManagement Training Project

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

Previous experience of agricultural support service projects aimed at developing private farmingsector in Central and Eastern European countries and in other regions has shown that such projects must befocused on private farmer needs, facilitate fanmer participation in decision making and implementation, andhave attainable objectives and targets particularly in terms of sustainability. CGS funding has provedeffective in improving client orientation and the productivity of research, as well as reformingsupply-driven, centralized research management, prevalent in many transition economies.

The project design team consulted with and incorporated ideas from members of similar projects inthe region and across the Bank as well, as stakeholders in the country including government officials,researchers, practitioners and farmers. Lessons learned from Bank-supported CGS in other countries are:

(a) there must be strong commitment from the government and the managing organization to theconcepts of the CGS;

(b) although the number of proposals received for evaluation may be small initially, there is anincrease over time as applicants and grant recipients become more aware of the benefits ofparticipation;

(c) CGS need to be designed after extensive consultation with potential participants ensuringawareness, a feeling of ownership and enthusiastic participation;

(d) in the initial stages, applicants may face problems in completing application forms, and it may benecessary to allow for a learning period and to provide some instruction;

(e) CGS quality gradually improves as experience and awareness of the value of accurately articulatedproposals for successful competition become accepted;

(f) transparency in operations and decision-making is essential to remove suspicion that grants aredestined only for a favored few in research and development and that applications are not being fairlyassessed; and

(g) decision makers should avoid any suspicion of a conflict of interest by absenting themselves fromthe decision making process for any proposals with which they are personally associated or whichinvolve their institutions.

These lessons were taken into account when designing the CGS for the proposed project and in developingthe Manual to guide in the implementation of the scheme.

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4. Indications of borrower comiitinent and ownership:

The Government of Romania intends to improve the performance and efficiency of agriculturalsupport services. Support of the World Bank in this endeavor has been requested. A Strategic Review ofAKIS in Romania has been undertaken at the request of the government with EU-Phare support. There isconsiderable interest in the competitive grant scheme that would fund research and extension. Farmers,government staff, and the private sector have already participated in developing concrete proposals forCGS funding. A detailed Implementation Manual has already been developed for the CGS with input fromall stakeholders. The MAF has issued a Ministerial Order to formr the Agricultural Services Board; theChairperson and Board members have been selected. The Board has had meetings already to discuss andfinalize the work associated with the CGS, including approval of the Manual for the CGS, identifying peerreviewers, and requesting proposals from the research and extension community that would be interested toparticipate in the CGS. The MAF has appointed key staff of the PMU so that project implementation willbe smooth and effective. Ministry of Finance has provided assurance that public sector agencies (researchinstitutes and others) that successfully bid for proposals from the CGS will be supported with adequatecounterpart funds.

5. Value added of Bank support in this project:

Assistance from other donors in research and advisory services has been mostly ad hoc, short-termand fragmented, focusing on a host of beneficiaries, ranging from universities, media, commodityorganizations, processors and the recently organized ANCA. Donor support has also been provided tosmall private farmer groups to organize themselves to strengthen their collective bargaining in terms ofinputs, outputs and services needs. The recently established ANCA is faced with staffing problemsincluding a lack of farm mnanagement expertise, poor credibility arnong farmers and severe budgetaryconstraints. Meanwhile, the needs of the private farming sector for appropriate advice and technologies arenot being adequately met. Therefore, the project's provision of funding opportunities through the CGS istimely. The project's institutional building component would provide selected training and support forANCA operations. The Bank's support will help stakeholders develop a vision for their future AKIS,formulate a realistic action plan, and try out, and learn from, a series of modest research and extensionprojects.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (supported by Annex 4):

O Cost benefit NPV=US$ million; ERR = %O Cost effectiveness* Other (specify)Predicting and quantifying econornic costs and benefits ex-ante of research and extension activities isproblematic. See explanation below for not attempting a financial and economic analysis in this project.

2. Financial (see Annex 5): NPV=US$ million; FRR = %

Ex-post analysis of agricultural research and extension in most countries reveals high returns tothese investments, ranging between 40-75%. For public sector agricultural research, average returns were48% for developed countries and 80% for developing countries. Similarly, for agricultural extension, theaverage returns were 63% for developed countries and 50% for developing countries. In Romania, with thenew private farmers starting at such a low production and productivity base, the returns to the transfer oftechnology and information are likely to be high.

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The range of benefits likely to be realized by testing altemative technologies and methods andpromoting their replication and adaptation would be diverse. New farming methods could lowerproduction costs, increase output efficiency; produce more profitable crops and livestock; improveproduct quality; reduce capital expenditures on machinery, irrigation equipment and buildings; reduce cropand livestock losses; make better use of available land, labor and other resources; and improve environmentand sustainability of production systems.

Ex-ante quantification of benefits of research and extension investments (rates of return) is usuallynot undertaken in many countries since it is difficult, if not impossible to anticipate precisely the outcomeof these activities. Even large surveys give spurious results. This is mainly due to constraints in terms ofnon-availability of reliable technical and economic data on different variables including farmer adoptionrates, and difficulties in linking cause (costs) and effect (outcomes). Whatever parameters one includeswould be questionable. Social and environmental benefits of research and extension projects areparticularly difficult to be expressed in monetary terms.

The Competitive Grant Scheme (CGS) will be implemented using a set of rigorous criteria andindicators already established. These criteria and indicators will assess proposed investment priorities (insector development), client relevance, and cost-effectiveness in terms of providing inmmediately neededtechnology, infornation and training which are critical to increase agricultural productivity, sustainabilityand incomes.

Since the conventional FRR/ERR analysis will not be done for purposes of investmentdecision-making in the CGS, the project's M&E system has been designed to ensure that the proposalsfunded by the CGS in applied research and extension are implemented in a cost-effective and efficientmanner.

Fiscal Impact:

The CGS will shift current emphasis on national agricultural research institutes (NARI) andgovernment extension agency (ANCA) to strengthening national research systems, broadly defined toinclude agriculture research institutes, universities, private sector, farmer organizations and NGOs. Thepluralistic institutional structure implicit in the CGS operation may gradually reduce the dependence onpublic funding of research and extension institutions by bringing about diversification of funding support,and improve the overall efficiency of public funding of research and extension activities. If the project issuccessful in enhancing the confidence of farmers and other stakeholders in research and extensioninstitutions as providers of new technologies, information and training, it should make possible governmentfunding being supplemented by beneficiary funding. The CGS will improve the efficiency and costeffectiveness of the investments in the research and extension system. However, it should be pointed outthat CGS builds on but does not replace the need for support for research and development in nationalagricultural research institutes. Because of budget constraints the national system will inevitably betrimmed to core functions. The CGS will be a mechanism for enhancing the performance of thisstreamlined service.

The project will also encourage greater efficiency and a more focused approach by the emergingANCA, the national extension service. Efficient capacity in new institutions will be developed. Theconfidence of farmers and other stakeholders in these institutions as providers of new technologies,information and training should make it possible for Government to gradually reduce its role.

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3. Technical:In interviews with farmers, researchers and extension workers conducted during project

preparation revealed that majority of private farmers would benefit from advice and technology in the fieldsof farm planning and management, organization and networking, integrated cropping systems, low inputuse, and low cost options of crop and animal production. These priorities will be important criteria forselection of research and extension proposals. In addition, an invent.ory check will be carried out of"on-the-shelf- technology" to identify relevant technologies that are fully developed and have been adoptedin certain areas but not yet promoted across the country.

4. Institutional:

a. Executing agencies:MAF will be the primary agency responsible for the project.

b. Project management:The CGS will be managed by an Agricultural Services Board (ASB or "Board") with

representation from government, universities, farmers and agribusinesses. The 13-member Board, whichhas already been established by a Ministerial Order, includes one member respectively from MOF, MAF,the Academy of Agricultural and Forest Sciences (AAFS), the research institutes from the NationalAgricultural Research System (NARS), the Agricultural Universities, the Agentia Nationala de ConsultantaAgricola (ANCA), four members of the private fanming sector (including a small farmer representative),and one member each of the private agro-processing industry and input suppliers. The ASB Chairpersonwould be a non-governmental person nominated by MAY and approved by the Board members. Thecomposition and functioning of the Board have been designed with a view to ensure greater independence inits operation and decision making. The Board would decide on the criteria and selection of proposals forboth research and extension contracts, which is hoped will ensure the strong integration between researchand extension.

MAF has recruited new administrative and technical staff in PMU at higher salaries to attractbetter qualified and experienced people, using Government Ordinance No. 52. Since this is the firstagriculture investment project that would be implemented by MAF in the post communist era, there isbound to be a learning period to fully understand the procurement, cisbursement and financial managementprocedures. Special hands-on training would be needed for project staff in the early project period. Someof this training is expected to begin even before project effectiveness. ANCA's involvement in projectmanagement has to be carefully built-in, without making it a dominant player (resulting in conflict ofinterest), since it will be competing with other agencies for grant funds from the CGS.

5. Social:

Farming in Romania has changed suddenly from large-scale collective farms to small-scale privatefarms. Now, more than 3.5 million small-scale farmers find themselves faced with the challenges ofsupporting themselves and their families from their farms. They need a range of support services,particularly knowledge of appropriate techniques to help them make good fanming decisions. The projectwould help extension carry the messages of research rapidly to farners, conduct on-farm demonstrations,and adapt state-farm techniques to smnall farms. Improvement in fain production would have directpositive impact on the social welfare of farm communities.

6. Environmental assessment: Environment Category: C

It is anticipated that the project would contribute to a more sustainable and environmentallyresponsible use of agricultural resources.

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Efficient use of farm inputs has been identified as one of the priority areas of research andextension needs of farmers and agro-processors. Some of the CGS funds would be directed to research andextension contracts to address this concern of farmers and agro-processors and would over time contributeto a reduction of nutrient runoff from the crop sector. Proposals already developed involve Integrated PestManagement and soil conservation which would help in the cost effective and sustainable use of chemicalsin farming. In the livestock sector, the project is expected to support interesting and innovative researchand extension proposals relating to the use of organic wastes. In the implementation of the CGS, a majorcomponent of the project, positive environmental benefits would be one of the major criteria for award ofCGS grant funds.

Research proposals which imply any adverse environrnental effects will not be funded. In fact,because of the nature of the work likely to be funded, there should be long-term environmental, welfare andhealth and safety benefits. The project will support environmentally-friendly and socially sensitiveagricultural practices.

7. Participatory Approach (key stakeholders, how involved, and what they have influenced or mayinfluence; if participatory approach not used, describe why not applicable):

a. Primary beneficiaries and other affected groups:A participatory needs assessment was carried out as part of project preparation, involving

stakeholders, using rapid rural appraisal and participatory rural appraisal techniques. This helped toidentify the needs of the private farmers. The nominal group technique was used as a means to arrive at aconsensus and prioritizing farming needs. In addition, key informant interviews of representatives of thepublic and private sectors were used to gather views on alternative approaches to research and extensionservices.

The primary project beneficiaries would be private farmers, i.e. individual producers(smallholders) that produce a surplus for sale, members of family associations and fonral associations,agro-processors, and contractors for research and extension proposals. The preparation team met with anumber of private farmers, agro-processors, and potential contractors of extension and research to find outtheir views and concerns regarding agricultural research, advice and information, to ensure that adequatemechanisms are built in the project design. Several extension proposals have been prepared by variousagencies which confirm their demand and interest.

A priority setting exercise for research and extension was undertaken with the stakeholders tounderstand and rank the immediate needs of farmers and agro-processors.

b. Other key stakeholders:

Agricultural supply industry, seed industry, food processors, and the government. The preparationteam has consulted extensively with representative stakeholders in the design of the project. All are keen toimprove the impact of research and extension.

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F: Sustainability and Risks

1. Sustainability:

The project will aim at reorienting the agricultural knowledge and information system to a demanddriven service, supported and eventually partially financed by beneficiaries. The extension contracts willprovide opportunities for both commercialization and privatization of agricultural extension services.However, all this will take time and cannot be realized during the life of this project. In the absence of anyprior experience, it is also unclear if the initiatives being promoted in the project will indeed be sustainable.Thus, the project will be an effort to test and, if proven successful, demonstrate to the Govermment theopportunities available and the justifications for continuing the effort with budgetary resources. IfGovernment can be convinced that reform is beneficial the Bank should follow-up with a larger supportprogram that will build on the activities promoted in this project.

The CGS will receive funds from the Bank loan and from contribution by government andsponsors, including the private sector. Using the institutional structures and procedures developed underthe project Government would be able to continue the scheme from its budgetary sources. Alternativesources of funding will also be explored for CGS to ensure longer tenn sustainability in an austerebudgetary climnate, reducing reliance on central/project budgets and thereby matching more closely themeans and needs of private farmers. Some of the extension contracts will explore possibilities of costrecovery. It is expected that the demand driven initiatives would pave the way for beneficiaries being morewilling to contribute to these activities.

2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

_Risk Rs a Risk fMinimizati MeasureFrom Outputs to ObjectiveCompetitive Grant Scheme (CGS) will S Careful selection of representatives innot be managed in a professional the ASB and staff of the Secretariat;manner to meet the needs of the private training to relevant CGS, PMU,farmers and agro-processors governiment officials and contractors;

award of grants based on the prioritiesestablished involving all stakeholders.Transparency in the working of theCGS has been emphasized. A CGSManual has been prepared to guide theproject team.

From Components to OutputsAPPLIED RESEARCH

* Lack of complementary funding for S MOF has given assurance that salariesresearchers salaries for researchers who are approved grant

funds would be covered by theGovernment budget

* Ministry of Research and Technology M Negotiations with MRT/AAFS(MRT)/AAFS responsible for all public confirmed co-operation for thesector research funding and could object establishment of the CGSto the CGS operating outside theircontrol.

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* Potential contractors do not respond N Research and extension agents areto invitations to tender for starved of funds. Therefore, interest inresearch/extension projects CGS is great. However, there will be

widespread publicity giving clearobjectives and requirements of thescheme. Also, organizers of schemepro-active in contacting andencouraging suitable research andextension contractors

* Inability to identify farmers of the M Farmers organizations contacted toright caliber and with time to devote to produce short list of potential members;the CGS Honorarium paid to Board members;

Already competition for Board positions* Favoritism in providing S Provision of independent peerresearch/extension grants reviewers, training to ASB members

EXTENSION SERVICES* Lack of experience among S Provision of training in advisory andcontractors in providing extension technical skills built into contractsservices to private farmers* Inability of contractors to identify M Ensure all altemative mechanisms areand draw on sufficient sources of explored early in the life of eachfunding to be sustainable before Bank contract so that they are sustainable infunding ceases the longer term; Government assurance

to continue with counterpart funding(after Loan closing) the activities thatwere approved by the CGS during theperiod of the project

* Lack of suitable business and N Considerable stock of researchtechnical information and advice of material exists which if re-evaluateddirect relevance to farmer clients could be immediately used by farmers.

Also strong linkages will be establishedbetween the research and extensionprograms supported by the project.

PROJECT IMPLEMENTATION* Quality of existing staff in PMU may S MAF has recruited better qualified staffnot be adequate to maintain a proper at higher salaries using the newfinancial management system and Ordinance No. 52; Hands-on trainingprocurement in the project to staff in PMU is envisaged even

before project start*ANCA, which is a new agency, will S ANCA assisted activities is kept at ahave difficulties in implementing it's manageable level in the project; TAcomponents support will be provided in early project

period; large part of material productionwork is contracted to private sector

Overall Risk Rating S

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

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3. Possible Controversial Aspects:

None.

G: Main Loan Conditions

1. Effectiveness Condition

* Govermment to appoint an independent auditor according to TORs and procurementprocedures acceptable to the Bank;

* Govermment to open a Special Account in a commercial bank acceptable to the Bank, anda local currency project account to receive govennment counterpart contribution;

* MOF and MAF to sign Subsidiary Agreement; and

The PMU to have an operational financial management system acceptable to the Bank.

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

The ASB/PMU will carry out the CGS in accordance with the requirements in theOperational Manual.

The members and the President of the ASB will serve their term and any replacement ofthe members under exceptional circumstances will require the Bank's approval.

MAF will maintain the PMU with resources, composition and under terms of referencesatisfactory to the Bank until completion of the project.

MAF will maintain the Project Steering Committee (PS C) until completion of the project,with terms of reference and composition satisfactory to the Bank.

The PMU will establish and maintain a financial management system in accordance withaccounting standards acceptable to the Bank.

H. Readiness for Implementation

I 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

1 1. b) Not applicable.

C 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

E 4. The following items are lacking and are discussed under loan conditions (Section G):

The Project Implementation Plan (PIP) provides comprehensive infornation on project components, theirimplementation arrangements, and the project procurement plan and financial management. AnOperational Manual for CGS and a Guidelines for the Financial Management System have been developed.

- 20 -

The first batch of research and extension proposals will be ready before project start.

1. Compliance with Bank Policies

0 1. This project complies with all applicable Bank policies.O 2. The following exceptions to Bank policies are recommnended for approval. The project complies with

all other applicable Bank policies.

undav Ka resa /}osep R. Goldberg Andrew N. Vorkinkean Vader Sector Manager/Director Country Manager/Director

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Annex 1: Project Design Summary

ROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)To improve the agricultural 1. I Development and adoption 1. I Bibliography of research Research and extensionresearch and extension of number of innovative results activities are successfullyservices to increase the technologies in agriculture. completedproductivity, profitability, and 1.2 Inventory of newsustainability of private 1.2 Increase in farm technologies Policy and economicfarmers and agro-processors productivity and profits. environment supports the use

1.3 Survey of private farmers of the new technology1.3 Programs supported help and agro-processors on thein the efficient use of chemical use of results and technologiesinputs and improve the use oforganic wastes. 1.4 On-site verification and

reports

Project Development Outcome I Impact Project reports: (from Objective to Goal)Objective: Indicators:To provide immediately 1.1 Existing on- the-shelf PMU reports/supervision Organizations will beneeded technology, technology is transferred to reports motivated to submit relevantinformation and training to farmers and agro-processors proposalsprivate farmers and 1.2 A number of innovative PMU reports/supervision Private farmers are able toagro-processors technologies and promotional reports identify and prioritize their

materials produced, relevant research/extension needs andon-farm research and to assess resultsdemonstration established

Improve efficiency, cost 2.1 A Competitive Grant Names of appointees, lists of MAF budget constraints doeffectiveness and client Scheme (CGS) that will meetings held, working not hamper progressrelevance in the management support relevant research and procedures issuedof research and extension. extension program managed Government will accept the

by an Agricultural Services lessons learned from theBoard (ASB) with farmer project and main stream themrepresentatives and privatesector is operational,procedures for scheme laiddown.

2.2 Wide membership of the Periodic PMU reports/stakeholders in management Supervision reportsof ASB.

2.3 Involve a wide range of Periodic PMU reports/public and private sector Supervision reportsorganizations to compete forresearch and extensioncontract funds.

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2.4 Achieve more PMU Records of CGS fundscollaborative work among awardedresearch and extensionservices providers

2.5 Contracts funded meet the Annual reports that linkprivate farmer and contracts funded to theagro-processors needs priorities established /Recordsdetermined through a priority of funds awardedsetting exercise.

2.6 Time taken to disseminate Management recordsresearch findings reduced.

2.7 Farmers receive an Reports of surveys of privateimproved service farmers

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Ky Petf*nia' nee

Output from each Output Indicators: Project reports: (from Outputs to Objective)component:CGS administration is fully ASB established Periodic PMU reports Farmer Organizations, privateoperational Secretariat to ASB is effective Supervision reports sector will identify suitable

farmers for board membershipResearch/extension activities Periodic PMU reports and from different regionsfrom priority topics selected Results and reports for these Supervision reportsfor support projects, produced within 4 Sufficient acceptable bids are

years received to utilize the WBSelected extension approaches Review by M&E Evaluation funds availabletested Lessons learned from Consultant, Mid Term review

extension approaches lead to CGS operates in a professionalCapacity in the public/private main streaming the successful manner without outsidesector and among farmers to ones interferenceformulate, implement and iPeriodic PMU reports andmonitor research and Sufficient number of quality supervision reportsextension program proposals from variousstrengthened |participants both public and

privateANCA has new information to Simple and user friendly Periodic PMU reports and Qualified and capable ANCAdisseminate to farmers materials for Rapid Impact supervision reports staff

program and FarmManagement Handbookproduced

ANCA's planned contribution Annual ANCA workplan Periodic PMU and supervision Detailed and good Terms ofto the AKIS in Romania is discussions and workshops reports Reference for the Workshop;clarified to help solicit support Active participation of thefrom Government/donors to stakeholdersANCA's future work program

- 24 -

Key PerformanceHierarchy of Objectives nd. lcators Monitoring & Evaluation i Critical Assumptions

Project Components I Inputs: (budget for each Project reports: !(from Components toSub-components: component) Outputs)Applied Research and US$ 14,860,000 Refer to InstitutionalExtension Component: 'Strengthening - CGS

Administration below.Proposals evaluated and Peer Review Reports, Board Secretariat is independent andcontracts awarded Presentation and Decision follows a professional code.

lists, and Secretariat CGS iExperienced and efficientApplication Registration list. personnel are appointed in the

:ASB, Secretariat and thePMU.

APPLIED RESEARCH 7,430,000 PMU and ASB reportsEXTENSION 7,430,000 PMU and ASB reports

Institutional Strengthening: 2,950,000CGS ADMINISTRATION 680,000 Periodic Project Management Continued Government

- ASB and its Reports from the PMU support for the programSecretariat is established andbegins work

I Effective coordination and Adequate incentives exist for- Technical assistance cooperation among the various timely component

for the management of the project related institutions implementationCGS including Peer ReviewerFee 1,190,000 .

PROJECTMANAGEMENT UNIT PMU reports(PMU)

- PMU is establishedand functional !PMU reports

- Specialized training:Young Scientists Program,Mass Media Communications,and Extension Staff ExchangeProgram PMU reports

- TA for PMU, ASB,AKIS Action Plan and ANCAWorks

ANCA RELATED 900,000 PMU reports/ANCA reports i Assumptions for providingPROGRAMS inputs:

- Rapid Impact Program PMU reports/ANCA reports. * WB funds sufficient- Farmer's Handbooks Actual production of Rapid * Service providers can

Impact Briefs, Farmer's increasingly provide own- Mass Handbooks, and Radio resources

Communications Program Programs * Progress in farm:management and technicalaspects can be sustained

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AKIS ACTION PLAN 194,000 PMU reports Greater farmer recognition of- TA to develop a the value of information and

research and extension action adviceplan

-Workshops and Studies-Production of Plan Production Results

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Annex 2: Project DescriptionROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

By Component:

Project Component 1 - US$14.86 millionApplied Research and Extension Component: This component would include a Competitive

Grant Scheme (CGS) that will support applied agricultural research and extension services on priorityproblems facing private fanners and promote private and private/public partnerships in research andextension services by encouraging widespread participation and competition. It would involve thefollowing:

(a) Establish an Agricultural Services Board (ASB), and its Secretariat;(b) Set priorities for research and extension services to be supported by the CGS;(c) Request proposals for research and extension service providers both from the private and

publicsector;

(d) Evaluate the proposals with the help of peer reviewers and ASB decides the proposals tobe awarded

grants;(e) Execute and monitor research and extension contracts; and(f) Monitoring and Impact Evaluation.

(The operational details of the CGS is outlined in the Manual for the Competitive Grant Scheme)

Project Component 2 - US$2.95 million

Institution Building: This component consists of support to the project agencies to carry out thefollowing

activities:

(a) Assistance to ASB to administer the Competitive Grant Scheme;(b) Develop and deliver extension messages that will have a rapid impact among large number

of farmers and build capacity in ANCA;(c) Develop and distribute farmn management handbooks;(d) Support a mass media radio program;(e) Formulation of an action plan for AKIS on the basis of the strategic review of the AKIS

that has been prepared;(f) TA and training, and(g) Support for PMU to implement project.

The Implementation details of Components 1 and 2 are outlined in the Project Implementation Plan.

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Annex 3: Estimated Project CostsROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

RomaniaAgricultural Support Services ProjectComponents Project Cost Summiary

% %Total(Leu Million) (USS Million) Foreign Base

Local Foreign Total Local Foreign Total Exchange Costs

A. Research & Extension Program /a1. CGS: Applied Research Program 52,506 52,506 105,013 3.39 3.39 6.78 50 422. CGS: Extension Program 52,506 52,506 105,013 3.39 3.39 6.78 50 42

Subtotal Research & Extension Program 105,013 105,013 210,025 6.78 6.78 13.55 50 84B. Institutional Support Program

1. ANCA Related Programs 8,226 3,716 11,942 0.53 0.24 0.77 31 52. Implementation of the CGS 6,936 2,480 9,416 0.45 0.16 0.61 26 43. Project Management Unit 9,680 6,692 16,372 0.62 0.43 1.06 41 74. AKIS Action Program 600 1,958 2,558 0.04 0.13 0.17 77 1

Subtotal Institutional SupDort Program 25,443 14,845 40,288 1.64 0.96 2.60 37 16Total BASELINE COSTS 130,456 119,858 250,313 8.42 7.73 16.15 48 100

Physical Contingencies 6,997 6,724 13,721 0.45 0.43 0.89 49 l

Price Contingencies 6,421 5,689 12,110 0.41 0.37 0.78 47 1

Total PROJECT COSTS 143,874 132,271 276,144 9.28 8.53 17.82 48 110

/a The Costab tables assumes an even break-down of grants between research and extension. However, many proposals are expected tohave a combinabon of both research and extension elements.PADtables, sumcom

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Romania

Agricultural Support Services Project

Expenditure Accounts Project Cost Summary

% % Total

(Leu Million) \a (USS Million) Foreign Base

Local Foreign Total Local Foreign Total Exchange Costs

1. Investment Costs

A. CGS: Research and ExtensionContracts 105,172 105,172 210,344 6.79 6.79 13.57 50 84

B. Fumiture 335 37 372 0.02 0.00 0.02 10 0

C. Equipment and Matenals 975 928 1,903 0.06 0.06 0.12 49 1

D. Technical Assistance 4,278 6,324 10,602 0.28 0.41 0.68 60 4

E. Technical Services - Production

lb 4,801 1,283 6,084 0.31 0.08 0.39 21 2

F. Seminars, Study andWorkshops 3,166 617 3,783 0.20 0.04 0.24 16 2

G. Training 1,114 5,075 6,189 0.07 0.33 0.40 82 2

H. Vehicles 198 422 620 0.01 0.03 0.04 68 0

Total Investment Costs 120,039 119,858 239,897 7.74 7.73 15.48 50 96

II. Recurrent Costs

A. Incremenatal Staff costs /c 8,208 - 8,208 0.53 - 0.53 0 3

B. Annual Audits 620 - 620 0.04 - 0.04 0 0

D. Local Travel related expenses 434 - 434 0.03 - 0.03 0 0

E. Vehicle 0 & M 186 - 186 0.01 - 0.01 0 0;F. Office O & M 969 - 969 0.06 - 0.06 0 0

Total Recurrent Costs 10,417 - 10,417 0.67 - 0.67 0 4

Total BASELINE COSTS 130,456 119,858 250,313 8.42 7.73 16.15 48 100

Physical Contingencies 6,997 6,724 13,721 0.45 0.43 0.89 49 5

Price Contingencies 6,421 5,689 12,110 0.41 0.37 0.78 47 5

Total PROJECT COSTS 143,874 132,271 276,144 9.28 8.53 17.82 48 110

\a Based on a exchange rate of 15,5000 Lei / 1 US$

\b For Production of ANCA related programs and AKIS Action Plan (bi-annually)

\c Per Ordinance #52. Based on Gross Wages.

PADtables, sumea

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Annex 4

ROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Predicting and quantifying economic costs and benefits ex-ante of research and extension activities isproblematic. See explanation in Summary Project Analysis Section.

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Annex 5: Financial SummaryROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

RomaniaAgricultural Support Services Project

Expenditure Totals by Years -- Totals Including Contingencies(US$ Million)

Totals Including Contingencies Totals Including Contingencies

Implemenation Period - Post Project Onerational Period Grand

00 01 02 03 Total 04 05 06 07 Total Total

Total Investment Costs 5.88 6.69 3.92 0.59 17.09 - 17.09

Total Recurrent Costs 0.17 0.18 0.19 0.19 0.73 0.19 0.19 0.19 0.19 0.77 1.50Total Costs 6.05 6.87 4.11 0.78 17.82 . 0.19 0.19 0.19 0.19 0.77 18.58

E Excludes Peer Review Costs.Source: PADtables.xis, eayrt & Annex5a

Financing Sources % of Total Project CostsImplemenation Period Post Promect Operational Period

00 01 02 03 Total i 04 05 06 07 TotalIBRD 21.0% 23.8% 14.2% 2.7% 61.7% 0% 0% 0% 0% 0%GOR 7.3% 8.3% 5.0% 1.0% 21.6% . 100% 100% 100% 100% 100%Research Grantees 2.8% 3.2% 1.9% 0.4% 8.3% 0% 0% 0% 0% 0%Extension Grantees 2.8% 3.2% 1.9% 0.4% 8.3%_ 0% 0% 0% 0% . 0%Total % 33.9% 38.5% 23.0% 4.4% 100% 1... 25% 25% 25% 25%1 100%

Millions 00 01 02 03 TotalIBRD 3.73 4.24 2.54 0.48 11.00.GOR 1.31 1.48 0.89 0.17 3.85Research Grantees 0.50 0.57 0.34 0.07 1.48Extension Grantees 0.50 0.57 0.34 0.07 1.48Total 2.05 2.65 0.95 0.03 17.82.

/PADtables/Annex5a expenditure by PY

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Annex 6: Procurement and Disbursement Arrangements

ROMANIA: AGRICULTURAL SUPPORT SERV'ICES PROJECT

Procurement

Procurement methods (Table A)

PROCUREMENT

The procurement of goods will be done in accordance with the Bank's Guidelines for Procurementunder IBRD loans and IDA Credits, January 1995, revised January and August 1996, September 1997 andJanuary 1999. Consulting Services and training would be procured in accordance with the Guidelines forSelection and Employment of Consultants by World Bank Borrowers., January 1997, revised September1997 and January 1999.

The PMU will be responsible for procurement and a local full-time procurement specialist familiarwith the Bank procurement requirement has been recruited. Information regarding procurementadministration will be collected and recorded and quarterly reports will be sent to the Bank. These reportswill indicate: (i) status of procurement; (ii) an updated procurement plan; and (iii) compliance withaggregate limits on specified methods of procurement. A General Procurement Notice will be published inthe United Nations 'Development Business' December 1999 issue.

Research and Extension Grant

The Competitive Grant Scheme (CGS) that funds the research and extension activities of theresearch and extension community from the public and private sector form the main element of the project.The CGS, administered by an Agricultural Services Board (ASB), wi.ll award research and extension grant(estimated to range between $5,000-$250,000 based on an initial assessment of the likely size of proposalsthat would need grant assistance) to successful applicants of the grant. The Secretariat of the ASB willsolicit research and extension proposals. The ASB will establish broadly the priority areas of research andextension services, the procedures for applying for the grant, and the criteria for review of proposals. Allqualified private and public sector research, extension and fanning specialists/organizations will be eligibleto submit proposals to the ASB which will be reviewed with the assistance of peer reviewers. Funds willbe approved for projects based on pre-determined criteria outlined in the CGS Manual and will be directlydisbursed to the successful applicants.

In exceptional situations, if for one specific scope of work and same quality of proposal there aremore than one competing agencies, the following principles will guide procurement:

(a) Government-owned universities, research institutes and extension agencies that do not demonstrateindependence and do not operate under commercial law will not compete with private sector. However,they may be subconsultant to private sector firms.

(b) If one or more government-owned universities, research institutes and extension agencies are ableto provide the same services of equal quality, the following procedures may be applied:

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(i) Single-Source Selection when the case meets the criteria for this method of selection as setout in paras 3.8 to 3.1 1 of the Consultant Guidelines.

(ii) Quality-Based Selection (QBS) when more than one of these institutions qualifies toexecute the assignment and the assignment meets the criteria set out in the Consultant Guidelines (para3.2).

(iii) Selection Based on Qualifications when more than one of these institutions are uniquelyqualified to execute the assignment and the assignment meets the criteria set out in the ConsultantGuidelines (para 3.7).

(c) Government-owned universities, research institutes and extension agencies under the direct controlof the borrower shall be excluded from provision of services.

For research agreements, the grant will finance mainly the operating expenses, materials, fieldlabor, fuel and supplies, project related over head costs and some expenses for capital items such aslaboratory equipment, field equipment for small plots, vehicles, computers, technical bibliographic materialand office equipment. For the extension agreements, the grant will finance items such as fielddemonstrations, leaflets, booklets, training, overhead costs, and some office equipment and vehicles.Procurement under the CGS will be done by the successful grant applicants through competitive proceduresrequiring as a minimum obtaining of three offers from three different suppliers/contractors and theirthresholds would be same as described under Goods and Services.

Applicants, who are awarded the research and extension grants will carry out their ownprocurement as the items procured will vary significantly among the agreements depending on the nature oftheir work. It may be difficult to package items in terms of economy and efficiency since the items neededare quite small and needed at different times and at different places in the country. Also, it is expected thatmost of the grant agreements will use project funds to finance their operating costs of research andextension services.

The PMU will be responsible for supervising the technical and administrative aspects respectivelyof the contracted research and extension services. In order to ensure transparency, the successful CGSapplicants will be required to keep all quotations, receipts and invoices of their procurement requests forinspection by PMU supervisors. For the implementation of CGS, a detailed Manual has been prepared byMAF which has been reviewed and agreed by the Bank.

The grants will be disbursed in tranches, and second and subsequent disbursements will requireapprovals by the technical team and the administrative team in the PMU based on physical implementationprogress report and financial records.

GoodsThe goods to be financed in the project will include furniture, vehicles, and office equipment

required during early project start for the Project Management Unit and the Secretariat that administers theCompetitive Grant Scheme. Other items include equipment and material such as desktop publishingsoftware, audio and video equipment, for ANCA to carry out its extension related work at different periodsin the project. Furniture, equipment, and vehicles, estimated to cost less $50,000 per contract, will beprocured through national shopping. Equipment packages, which will consist mainly of office computers,fax machines, copiers and ANCA extension related material, are shown in aggregate amounts in thefootnotes of the procurement arrangement table below.

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Technical ServicesTechnical services include printing of ANCA extension material for the Rapid Impact Program and

Farm Handbooks, and production of ANCA Annual Work Plan and Agricultural Knowledge InformationSharing (AKIS) strategy. Contracts under $50,000 will be procured through National Shopping and forcontracts less than $100,000 through International Shopping. (See aggregates in the footnotes to theprocurement table).

Consultant ServicesThe Consultants for Technical Assistance (both local and foreign) and training will be selected

using the selection process for individual consultants. The project also includes data collection work for theRapid Impact Program and Farm Management Handbook. The related research, travel, per diem andmiscellaneous expenses of the government and non-government employees for such data collection andworkshops will be financed under the loan. The consultancy firm for carrying out the project audits will beselected under the CQ method. Finally, the ASB members and peer reviewers for the CGS will be selectedas individual experts.

TrainingOverseas training for Young Scientist Program, Extension Staff Exchange Program and Mass

Media Communications Program and project implementation related training will be carried out accordingto a training plan, which the Borrower will revise semi-annually and submit it to the Bank for approvalprior to implementation.

Recurrent CostsThe incremental recurrent costs associated with the project includes incremental gross salaries

(PMU -- 3 technical and 4 administrative staff); O&M costs of office and vehicles of the PMU; their perdiem cost for field travel; and supplies.

Institutional Capacity building in ProcurementAn assessment of MAF/PMU capacity to implement project procurement in accordance with the

criteria outlined in Annex 3 of LACI Implementation Handbook was completed. This review addressedthe legal aspects, procurement cycle management, organization and functions of the procurement unit in thePMU, support and control systems, record keeping, and staffing. The review assessed the risks(institutional, political, procedural etc.) that may negatively affect the ability of the agency to carry outprocurement processes and has rated it a high risk country. Therefore, the prior review thresholdsrecornmended are those applicable to a high risk country. In collaboration with MAF/PMU, an action planto address deficiencies has been prepared to strengthen PMU capacity to administer procurement in aneffective and transparent way as part of sound governance and good project management. This includes:(a) selection of a qualified procurement specialist in the PMU with experience in external donor assistedprojects; (b) train procurement and PMU staff on the World Bank procurement procedures; (c) conduct acomprehensive procurement training for all project related staff as part: of the project launch workshop; and(d) use of Bank's Standard Bidding Documents. The Bank will monitor procurement activities, contractmanagement and record keeping during periodic supervision missions. The Bank procurement specialistwill not only conduct ex-post reviews but will also provide guidance and support to the PMU in carryingout the procurement plan.

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Procurement Methods Table A

Romania

Agricultural Support Services Project

Proturement Arrangements

(USS Million)

Procurement Method _

Other

(SeeICB MCB footnoteal N.B.F. Total

1. COS Grant Agreements1.1 Applied Research andExtension Grant Agreements - 14.89 0.00 14.89

(8.94) (8.94)

2. Goods2.1 Furniture. Vehicles, Equipmentand Materials - - 0.21 0.00 0.21

(0.10) (0.10)

3. Tachnical Services3.1 Technical Services - PrintProduction - - 0.46 000 0.46

(0.10) (0.10)4. Consultant Services

4.1 Technical Assistance - - 0.75 0.00 0.75

(0.75) (0.75)

4.2 Training - - 0.50 0.00 0.50

(0.50) (0.50)4.3 Data Collection andWorkshops 0.28 0.00 0.28

(0.21) (0.21)

S. Recurrent Costa

5.1 Recurrent Costs 0.67 0.06 h 0.73

_ 0411 0.00 (0,411

Total 17.76 0.06 17.82

'11.00) 0.00 t10

Note: Figures (in parenthesis) are the respective amounts financed by World Bank

a Research and Extension Grant Agreements - Procurement will be based on the Competitive Grant Schemeselection process. ($8.94 million)

b Goods - Procured through National Shopping ($100,000), of which Funiture is $300, Vehicles Is S29.100,and Equipment/Materials isS69,600.

c Technical Services: IS contracts ($75,000) and NS contracts ($25,000).

d Technical Assistance (individuals USso.75 million). Technical Assistance Includes: Peer Review Contracts($205,500-lnd), local and foreign specialists to assist in the PMU/Secrelariat for Monitoring and Evaluation($75,000-lnd); local and foreign specialists under the PMU Applied Research/Extension Specialists ($183,600.Ind), Overall Operational Specialists (S22,900-Ind), Financial Systems Specialist ($11.500-Ind), LocalProcurement Specialist ($6,700-nd), Monitoring & Evaluation Specialists (S33,900-lnd); AKIS Action Planningspecialists ($162.000.Ind); as well as ANCA's work plans and programs ($44,700-lnd). All TA specialists, localand foreign, will be contracted from the private sector and thus, not Government staff.

a Training includes: 3 International training programs administered by the PMU ($250,000). ANCA RadioProgram training ($190,000), CGS related training ($50,000), and PMU/Secretariat training (S10.000).

f Date Collection and Workshops includes: ANCA research/data collection for farm management handbookprogram and Rapid Impact program and workshops ($111,000); and AKIS Development and Annual ReviewWorkshops ($110,000).

g Recurrent Costs - Includes gross incremental salaries for PMU (3) and Secretariat (4) (IND - (104,000+86,000), PMU/Secretariat local travel, O&M costs of the offices and vehicles for the PMU and Secretariat(175.000); and Audit ($46,900-CQ).

h Recurrent Costs - Includes ASB honorium and expenditure related taxes paid directly by the GOR.

Procure2/procurement promth

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Prior review thresholds (Table B)

The Bank will review the first batch of research and extension proposals approved by the ASBunder the CGS procedures. Any proposal that does not correspond to the eligible criteria established in theCGS Operational Manual will be subject to special consideration and prior review of the Bank.

All consultancy contracts in excess of $100,000 for firms and $20,000 for individuals will besubject to Bank prior review procedures. Moreover, the Bank will review, regardless of value, terms ofreference, experience and terms of employment of all consultants. All other contracts will be subject toex-post review by the Bank on a random basis. The first international and national shopping contracts willalso be subject to World Bank prior review.

Table B: Thresholds for Procurement Methods and Prior Review(US$ Million equivalent)

Contract Value Contracts Subject toThreshold Procurement Prior Review

Expenditure Category (US$ thousands) Method (US$ millions)

Goods / Technical Services <50 NS 0.05

Technical Services <100 IS 0.08

Consultant Services <100 CQ 0,047a>20 IND 0.41

Incremental Recurrent Costs N/A

The audit contract is subject to Bank's prior review.

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Disbursement

Allocation of loan proceeds (Table C)

The allocation of loan proceeds is given in Table C, which also indicates the fimancing for thevarious categories of expenses. The project will be executed over a period of four years when the loanamount of $11.0 million will be disbursed. The proposed closing date for the project will be December 31,2004. Disbursement in the early project period is expected to be based on the Bank's existing Statement ofExpenditure (SOE) method. The government is new to PMR-based disbursement procedures. The use ofthis disbursement procedure will, however, require that the PMU in the MAF establish a sound financialmanagement and reporting system, the key elements of which are outlined in the Project ImplementationPlan.

DISBURSEMENTTable C. Allocation of Loan Proceeds

Loan Coverage % of ExpendituresExpenditure Category Amount in US$ Million to be Financied

Applied Research & Extension Grants underPart A of the Proaect 8.00 75.0%Goods under Part B of the Project 0.10 100% of foreign

expenditures, 100% of localexpenditures (ex-factorycost) and 80% of localexpenditures for otheritems orocured locally.

Consultant's Services and training under PartB of the Proiect 1.28 100%Technical Services for print production 100% of foreign

0.08 exenditures.Incremental Operating Costs 100% (except for locally

0.38 Droduced goods - 85%)EUnallocated 1.16 1

Total 11.00 64%

Use of statements of expenditures (SOEs):

The following disbursements will be supported by full documentation: (a) goods with a contractvalue of US$50,000 equivalent per contract or more; (b) services with a contract value of US$100,000 ormore for consulting firms, and US$20,000 or more for individual consultants. All other disbursements willbe made on the basis of State of Expenditures (SOEs) against eligible expenditures. Supportingdocumentation for SOEs will be retained by the Borrower and made available to the Bank duringsupervision.

Special account:The PMU will open and maintain a Special Account with an acceptable commercial bank in

Romania on terms and conditions acceptable to the Bank. The PMU will mnanage the SA and the authorizedallocation of it will be $500,000. At the start of the project, the initial deposit will be limited to $350,000and the remaining portion of the authorized allocated after cumulative disbursements reach a level of $2million. Withdrawal applications for the replenishments of the SA should be sent to the Bank on a monthlybasis, or when the balance of the SA is equal to about half of the initial deposit or the authorized allocation,whichever comes first. The SA will be audited annually by independent auditors and the audit reportsubmitted to the Bank for review and approval within six months of the end of the fiscal year.

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Agncultural Support Services ProjectTable D. Procurement Information

= __ _ _ _ . _ _ _ _ ._ __ _ ~~~~~~~~~~Percentage ofloan amount

Other subject to priorGoods ICB NCB IS NS Minor Works methods review

G<=50,000Procurement ($100,000)

thresholds: individual TS<=100,000 TS<=50,000and (aggregate) N.A N.A. ($75.000) (25.000) N.A.

$125,000Prior Review N.A. N.A. 75.000 50.000 N.A. 62.5%

Consultants QCBS QBS LCS Qualifications Single Source Individuals

Procurementmethod thresholds N.A N.A N.A. ($47.000) None ($780.993_

$67,000Prior Review N.A. N.A N.A. ($47.000) N.A. ($20Q000) 5.2%

Procurement Process. A procurement specialist will be included in supervision missions to carryExpost Review out ex -ost review, and her.his findings wil be included in the mission's re ort.

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The capacity of the PMU, which will implement the project, has been assessed. Based on the analysis compiled in theAttachment 2 of this assessment, the result is that Romania is a high risk country from the public procurement point ofview. The country's procurement legislation exists but lacks harmony and consistency. It has been determnined that thePMU, is not fully staffed and well equipped, and does not have experience in Bank's project, procurement procedures andpractices. The folloving is recommended to build PMU capacity to undertake procurement:(a) The project would initially focus on training and providing technical assistance in the areas of procurement and World

bank procedures. PS and the MAF staff shall be provided with training during the project launch workshop and othertraining organized by the World bank and other intemational institutions from time to time.(b) Training shall also include the preparation of bidding documents for each type of procurement method proposed in

the loan agreement. PMU/MAF will follow the WB Standard Bidding Documents, procedures, guidelines and any otheragreed procedures.

Country Procurement Assessment Report or Country Are the bidding documents for the procurement actions ofProcurement Strategy Paper status: On-going the first year ready by negotiations

Yes X No

Estimated date of Indicate if there is procurementEstimated date of publication of General subject to mandatory SPN in Domestic Preference forProject Launch Workshop Procurement Notice Development Business Goods, if applicable3/5/1999 1/15/1999 Yes No X Yes No X

Yes Advance YesRetroactive financing No X Exolain: procurement No X Explain:Explain briefly the Procurement Monitoring System:

The PMU will establish a computer based monitorinc system.Co-financing: Explain briefly the procurement arrangements under co-financing:

..- . -

Name of Procurement Staff or Bank's staff part of Task Team responsible for the procurement in the Project:Naushad Khan, Senior Procurement Specialist, Ext: x32699Explain briefly the expected role of the Field Office in procurement:

The resident mission does not have a qualified procurement staff; however, the project officer assigned to this projectwould play an important role of the monitorng of the procurement process and intermediary between the headquartersand the PMU.

PROJECT ACCOUNTING AND FINANCIAL MANAGEMENT

Role of Project Management Unit (PMU). The PMU, besides coordinating project implementation, willbe responsible for maintaining the project's accounting and financial management system. Among otherthings, PMU will manage project expenditures; carry out and/or oversee procurement of goods and servicesfinanced by the project; and monitor compliance with the Loan Agreement between the Bank and thegovernment, and the Subsidiary Agreement between MOF and MAF. The PMU will maintain necessaryfinancial records and administer control procedures over project accounts and finances, acceptable to theBank.

Project Accounting and Financial Management System. MAF's existing institutional capacity in the

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area of project accounting and financial management is limited. Its Finance Department performstraditional functions: it prepares annual budget proposals and ensures that MAF expenditures are madeconsistent with budgetary approvals. MAF's accounting system is only partially automated and is notdesigned to maintain accounts consistent with international accotmting standards. MAF, therefore,proposes to equip the PMU with modem computer equipment, upgraded accounting software, and trainedstaff to ensure that project funds are managed efficiently.

CGS Manual and Accounting and Financial Management Guidelines. The CGS Manual and theFinancial Management guidelines outlined in the PIP were finalized during negotiations. Key elements ofthe project accounting and financial management system are shown in the PIP.

MAF has recruited new staff, with qualifications and experience acceptable to the Bank, for thepositions of PMU director, financial management specialist and procurement specialist, and three technicalspecialists who form the Secretariat for the ASB.

Adequate provision has been made in the project cost for PMU training, staff training, and otheradministrative expenditures for ensuring effective project implementation including project accounting,financial management and audit aspects.

Accounting Software. During pre-appraisal of the project, accounting software packages suitablefor the project were reviewed. The fnal decision on the selection of the software will be taken by PMU/Bank prior to Board on the basis of an ongoing evaluation of similar software packages available in themarket. The selected accounting software must be capable of producing various financial reportsincluding trial balance, statement of cash flows, general journal, general ledger (in summary and in detail),chart of accounts, income statements and balance sheet, and PMRs, suitably supplemented by MS-WORDand EXCEL software. The evaluation will determine that the selected software conforms to theserequirements.

Disbursement and Funds Flow Mechanism. The Bank loan will be initially disbursed under theBank's traditional Statement of Expenditure (SOE) method, with the option of moving to the ProjectManagement Reports (PMR-based) disbursement method, by mutual agreement between the governmentand the Bank. This will allow PMU staff necessary time to get familiar with the project's monitoringaspects, and be able to effectively use PMR-based disbursement procedures. An indicative PMR format ispresented in the Project Implementation Plan; this format was reviewed and updated during negotiations.The project's disbursement and funds flow mechanism are shown in the PIP.

A Special Account will be opened and managed by PMU at a commercial bank acceptable to theBank. The Bank loan will be disbursed mainly into this special account. The Bank loan will also bedisbursed directly to the Borrower (MOF) or to suppliers of works, goods and services or to a commercialbank against World Bank special commitments. The PMU will maintain a separate bank accounts (in localcurrency) to receive and mnanage government counterpart contribution.

Internal Controls. The primary oversight on the project's accounting and financial managementwill be provided by PSC which will be chaired by the Minister of Agriculture and Food and comprise ofrepresentatives of MOF, ASB and ANCA. MAF's Finance Department has a mandatory responsibility toverify that PMU (among other MAF units) adheres to checks of accuracy, completeness and authorizationof individual transactions. This is supplemented by COA's oversight function, which it does for and onbehalf of the Parliament. The PIP provides an indicative framework for operational procedures and controlsthat will be exercised by PMU with regard to financial and procurement transactions.

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Audit Arrangements. Independent auditore acceptable to the Bank will perform external auditsannually in accordance with International Standards on Auditing. The scope of the audit will include financial statements of the Project as maintained by the PMU and the use of the CGS grants by beneficiaries.MAF will recruit an independent auditor based on terms of reference acceptable to the Bank, as shown inthe PIP. The independent auditor will be appointed as a condition of effectiveness of the Bank loan. Thegovernment will appoint the auditor for an indefinite term of office subject to annual confrmation by PSC.The audit cost will be financed by the Bank loan. The TOR for the independent auditor is included in thePIP.

As the grant proposals in applied research and extension received by the CGS will receive athrough scrutiny by ASB and its secretariat, the potential risk of misuse of grant funds is minimal.However, the audit of the use of the CGS grants by the beneficiaries will be included within the scope ofthe annual audit of the project.

Reporting Requirements. In addition to the submission of annual audited financial statements,the PMU will produce full quarterly Project Management Reports (PMRs) beginning approximately sixmonths after project effectiveness in formats acceptable to the Bank. The indicative formats for the PMRhave been included in the PIP.

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Annex 7: Project Processing Schedule

ROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Pro t1 'u''l'e'9'l65<0qf' 'P 0023''59egi''7ij ''t'#g A S ifii''

Time taken to prepare the project (months) 18First Bank mission (identification) 04/20/98 04/20/98Appraisal mission departure 09/16/99 09/16/99Negotiations 11/01/99 11/29/99Planned Date of Effectiveness 05/15/2000

Prepared by:

Kundhavi Kadiresan

Preparation assistance:

Thomas Ward and Gail Lee

Bank staff who worked on the project included:|; Name Spe,alit

Kundhavi Kadiresan Economist and Project TTL

John Hayward Quality Assurance

Aly Abu-Akeel CounselKenneth Miller DisbursementsJitendra Srivastava Competitive Grant Scheme/Agricultural Research

Willem Zijp ExtensionDoina Rachita Romania Agriculture Sector

Ranjan Ganguli Financial Management

Naushad Khan ProcurementBogdan Constantinescu Financial ManagementAnthony Pritchard (Consultant) Competitive Grant Scheme and Priority Setting

Ramesh Deshpande (Consultant) Financial Management/ Economic AnalysisGarry Smith (Consultant) Research/Extension/Project CostingDan Pomohaci (Consultant) Romania Ag. SectorThomas Ward (Consultant) Project Costs and Documentation Layout

Dana Dobrescu Project ImplementationE. Gail Lee Project Documentation

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Annex 8: Documents in the Project File*

ROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

A. Project Implementation Plan

Details on Project ComponentsProject CostsProcurement ArrangementsProcurement PlanDisbursement PlanProject Implementation ScheduleOrganizational ChartFinancial Management System

B. Bank Staff Assessments

Applied Research - A. PritchardExtension - G. SmithFinancial Management - R. DeshpandeFinancial and Economic Analysis - R. Deshpande

C. Other

*Including electronic files

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Annex 9: Statement of Loans and CreditsROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Difference between expectedand actual

Original Amount in US$ Millions disbursements

Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd

Number of Closed Projects: 41RO-PE-39251 1999 GOVERNMENT OF ROMANIA PIBL 25.00 0.00 0.00 25.00 0.00 o.0oRO-PE-4920D 1999 GOVERNMENT OF ROMANIA SOCIAL DEVELOP. FUND 10.00 0.00 0.00 10.00 1.80 0.00

RO-PE-58284 1999 GOVERNMENT OF ROMANIA CULTURAL HERITAGE 5.00 0.00 0.00 4.96 0.46 0.00

RO-PE-64853 1999 GOVERNMENT OF ROMANIA PSAL 300.00 0.00 0.00 300.00 0.00 0.00

RO-PE-34213 1998 ROMANIA GENERALCADASTRE 25.50 0.00 0.00 24.82 0.82 0.00

RO-PE-44614 1998 GOVERNMENT OF ROMANIA SCHOOLS REHABIUTATI 70.00 0.00 0.00 69.69 14.79 0.00

RO-PE-55495 1998 GENERAL INSPECTORATOF CO CHILD WELFARE REFORM 5.00 0.00 0.00 4.80 1.10 0.00

RO-PE-8788 1998 GOVERNMENT OF ROMANIA TELECOMMUNICATION 30.00 0.00 0.00 28.52 7.52 0.00

RO-PE-39250 1997 ROMANIA SECOND ROADS 150.00 0.00 0.00 98.25 -14.25 0.00

RO-PE-8778 1997 ROMANIA BUCHARESTWATERSUPP 25.00 0.00 0.00 16.00 11.99 0.00

RO-PE-8793 1997 SNCFR HIGHER EDUCATION 50.00 0.00 0.00 42.55 42.55 5.55

RO-PE-36013 1996 RENEL RAILWAY 120.00 0.00 0.00 81.10 51.11 0.00

RO-PE-8794 1996 GOVT. OF ROMANIA POWER SECTOR REHAB. 110.00 0.00 0.00 101.88 99.89 0.00

RO-PE-8776 1995 Government ot Romania EMPLOY. & SOC. PROTE 55.40 0.00 0.00 46.16 37.58 0.00

RO-PE-8774 1994 INDUSTRIAL DEVELOPME 175.00 0.00 0.00 111.74 111.74 95.24

RO-PE-8777 1994 PETROLEUM SECTOR REH 175.60 0.00 0.00 103.95 103.96 0.00

Total: 1,331.50 0.00 0.00 1,069.42 471.06 100.79

Active ClosedProjects Projects Total

Total Disbursed (IBRD and IDA): 282.91 3,551.38 3,834.29of which has been repaid: 0.00 2,329.95 2,329.95

Total now held by IBRD and IDA: 1,381.50 1,385.62 2,767.12Amount sold: 0.00 19.78 19.78

of which repaid: 0.00 19.78 19.78Total Undisbursed: 1,069.42 152.02 1,221.44

Actual disbursements to date minus intended disbursements to date as projected at appraisal.

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ROMANIASTATEMENT OF IFC's

Held and Disbursed Portfolio3 1 -Jul- 1999

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

1992 Alcatel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001994/98 Romlease 3.96 0.00 0.75 0.00 3.96 0.00 0.75 0.001996 Danube Fund 0.00 0.00 2.00 0.00 0.00 0.00 1.20 0.001997 Efes Brewery 11.87 5.00 0.00 8.00 11.87 3.76 0.00 8.001997 Mobil Rom 40.00 10.00 0.00 160.00 38.00 10.00 0.00 152.001997 Rambox 1.87 0.00 2.00 0.00 1.87 0.00 2.00 0.001998 Banc Post 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.001998 Demir Romania 5.00 0.00 3.20 0.00 1.00 0.00 2.55 0.001998 FCR Fund 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.001998 Garanta 0.00 0.00 0.20 0.00 0.00 0.00 0.20 0.001998 Bilstein Compa 2.71 0.00 0.00 2.71 2.71 0.00 0.00 2.711998 Small Bus. Loan 5.00 0.00 0.02 0.00 2.00 0.00 0.02 0.00

Total Portfolio: 70.41 25.00 18.17 170.71 61.41 23.76 16.72 162.71

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00

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Annex 10: Country at a GlanceROMANIA: AGRICULTURAL SUPPORT SERVICES PROJECT

Europe 6 Lower- 9'9'99POVERTY and SOCIAL Central middl.

Romania Asia Incmom Development diamond'1998Population, mid-year (rnillions.i 22.5 473 9D8 Life expectancyGNP per capita (Atlas method, US$) 13f9 2190 1,jio eG1NP (Atlas method, USS billions) 31.3 1.039 1,557

Average annual growth, 1992-98

PopurlMon(%) -0.2 0.1 1 GNP 7 GrossLabor force (S5,f 0); -2,3 9 : 0.6 ; 1 per primary

Most recent estimate (latest year avallable, 1992982) capita enrollment

Poverty (% of poputation belowstionaol poverty line) 30Urban population (% oftotfa population) 57 7 68 56Life expectancy at birth (years) 69 69 6 |Infant mortality (per 1,000 live births): 22 23 3S6Chif4 mainutrntion I% of children undet 6) £ . . Access to sate waterAccess to sate water (% oftpopulation) 96 ., 7iIlliteracy (% of population ags 15i) 3 4 14Groyx primaryenrollment (%6ofschool-agopopulalion) 97 100 703 Romania

Male 97 t01 fO! Lower-middle-income groupFemaie 97 99 toll

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1977 1967 1997 199ttEconiomIc ratio.s

GDP (USS billions) - 38.1 32.1 39.2

Gross domestic investment/GOP 39.8 31.8 21.5 17:1 TradeExports of goods and services.GDP .. 26.6 29.7 25.7Gross domestic savings/GDP 40.6 14.5 9,2Gross national savings/GOP . . 40 15.2 9.5

Current account balancelGDP ,, 5.4 -6.7 -7.0 Domestic F 4 InvestmentInterest payments/tDP , 1.3 1.5 1.4 Savings .Total debUGDP .. 17.3 30.7 25.6Total debt servicelexports 1.0 21.9 18,1 22.8Present value of debtlGOP . . 26,4Present value of debtlexporfs .. .. 91.4 ndebtedness

1977-a7 1989-98 19917 1999 1989i3(average annual growlh)GOP 3.1 -2.3 -6.6 -7.5 -4. -RomaniaGNP per capita 2.5 -2.2 -6.5 -8.1 I I I - Lower-middle-income groupExports of goods and services : 2.5 2.1 2.5 2.8

STRUCTURE of the ECONOMY

1977 1987 199T 1998 Growth rates of output and investment I%)(% of GOP)Agriculture .. 14.2 19.6 16.4 "loIndustry 57.2 44.6 40.1 .

Manutacturing .. .. 30.5 29.9Services 26.6 35.9 43.4 10

Private consumption .. 50.5 75.4 76.1 93 94 95 9n 97 9xGeneral government consumption .. 8.9 10.1 14.7 -GDI) -'-GDPImports of goods and services .. 17.8 36.7 34.2

1977-87 1988-98 1997 1998 Growth rates of exports and imports (%O(average annual growth)Agriculture .. 0.6 2.2 -9.5 20Industry .. -3.2 -7.7 -10.1

Menutacturino .. .. -4.9 -11.4 -1. 0Services . 3.5 -11.0 -4.5

Private consumption .. 0.4 -6.2 -3.3General government consumption .. 3.5 -10.6 14.1 .r-Gross domestic investment .. -7.6 -14.3 -30.0 93 94 5 0 7 8

Imports of goods and services .. 2.1 -4. 5.2 -Exp.rt.s eImpnrtsGross national product 3.1 -2.5 -6.7 -8.3

Note: 1998 data are preliminary estimates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

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Romania

PRICES and GOVERNMENT FINANCE1977 1987 1997 1998 Inflation (%)

Domestic prices 3 (% change)Consumer prices .. 0.9 154.8 59.1 200

Implicit GDP deflator -5.9 6.1 146.7 46.6100

Government finance(% of GDP, inciudes current grants) oCurrent revenue .. 50.4 30.4 34.3 93 94 95 96 97 98Current budget balance .. 31.6 1.1 0.4 - GOP deflator *C PIOverall surplusideficit .. 15.2 -3.6 -4.0

TRADE

(US$ millions) 1977 1987 1997 1998 Export and import levels (USS millions)

Total exports (fob) .. 10,491 8,431 8,302 12,000

Common metals and articles .. .. 1,556 1,583Mineral products .. .. 638 508 s.000Manufactures .. 7,570 5,139 5,238

Total imports (cif) .. 8,313 11,280 11,838 ,00_Food .. 111 426 523 3.000

Fuel and energy .. 4,722 2,408 1,687Capital goods ., 2,101 2,975 3,206 0

92 93 94 95 96 97 98Export price index (1995=100) .. 77 87Import price index (1995=100) .. 95 105 E.p.,Ets MImportlTerms of trade (1995=100) .. 82 82

3ALANCE of PAYMENTS

(UIS$ millions) 1977 1987 1997 1998 Current account balance to GOP ratio (%)

Exports of goods and services 7,357 11,261 9,955 9,519 tfImports of goods and services 7,529 8,828 12,349 12,798Resource balance -172 2,433 -2,394 -3,279

Net income -132 -390 -322 -392Net current transfers .. 0 579 753 1.11 11Current account balance -304 2,043 -2,137 -2,918 3

Financing items (net) -30 -1,002 3,802 2,075 IChanges in net reserves 334 -1,041 -1,665 843

Memo:Reserves including gold (US$ millions) .. .. 4,671 3,789Conversion rate (DEC, locaJfUSS) .. 22.2 7,787.7 8.875.8

EXTERNAL DEBT and RESOURCE FLOWS1977 1987 1997 1998 Composition of total debt, 1998 (USS

(llS$ millions) millions

Total debt outstanding and disbursed 756 6,580 9,832 9,832 millons)IBRO 288 2,039 1,392 1,443 G: 1.189 A: 1.443IDA 0 0 0 0

Total debt service 76 2,493 1,844 2,246 | 539IBRD 17 373 99 150 C.S39IDA 0 0 0 0

Composition of net resource flows D: 661Official grants 0 0 108Official creditors 154 -430 598 -185Private creditors 0 -1,023 1,059 362 F: 4,262 1 71BForeign direct investment 0 0 1,224 2,040Portfolio equity 0 0 883 130

World Bank programCommitments 237 0 620 66 A .IBRD E - Bilat.rtDisbursements 145 0 399 153 B IDA D- Oth.n -vult.lut.r.I F. P-terPrincipal repayments 0 215 29 68 C - I- Shart4e,mNet flows 145 -215 371 84Interest payments 17 158 70 81Net transfers 128 -373 301 3

Development Economics 919/99

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