Document of The World Bank FOR OFFICIAL USE ONLY Report No: 269 13-AZ PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 10.2 MILLION (US$l5 MILLION EQUIVALENT) TO THE AZERBAIJAN REPUBLIC FOR A RURAL INVESTMENT PROJECT (AZRIP) May 6,2004 Environmentally and Socially Sustainable DevelopmentUnit South Caucasus Country Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document o f The World Bank
FOR OFFICIAL USE ONLY
Report No: 269 13-AZ
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 10.2 MILLION (US$l5 MILLION EQUIVALENT)
TO THE
AZERBAIJAN REPUBLIC
FOR A
RURAL INVESTMENT PROJECT (AZRIP)
May 6,2004
Environmentally and Socially Sustainable Development Unit South Caucasus Country Unit Europe and Central Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective May 2004)
Currency Unit = Manat AZM 1 = USS0.0002
USS1 = AZM4918.0
A C D W O C A
ADCP ADRA AISP ASDAPS AZM AZRIP BIS CAS CBO CDD CFAA CHF CIS CPAR CPP CPPR CQ EA EBRD EIRR EMP ENPV EU FINCA F M FMR FPP IA I B T A ICB IDPs IFAC IFC IMF
FISCAL YEAR January -- December
ABBREVIATIONS AND ACRONYMS
Agricultural Cooperative Development InternationaWolunteers in Overseas Cooperative Assistance Agriculture Development and Credlt Project Adventist Development and Relief Agency International Annual Investment Strategy and Planning Agency for Support o f the Development o f the Agricultural Private Sector Azerbaijani Manat Azerbaijan Rural Investment Project Beneficiary Investment Share Country Assistance Strategy Community-Based Organization Community-Driven Development Country Financial Accountability Assessment Report Community Housing Foundation Commonwealth o f Independent States Country Procurement Assessment Review Community Participation Procurement Country Portfolio Performance Review Consultants Qualification External Audit European Bank o f Reconstruction and Development Economic Internal Rate o f Return Environmental Management Plan Economic Net Present Value European Union The Foundation for International Community Assistance Financial Management Financial Monitoring Report Farm Privatization Project Internal Audit Institutional Building Technical Assistance International Competitive Bidding Internally Displaced People International Federation o f Accountants International Finance Corporation International Monetary Fund
FOR OFFICIAL USE ONLY
IPA IRC I S ISA LLC M&E M I S MOJ M P MPC MPP MW N C N C B NGO N P V O M O&M PER P M U PM&E PRSP POC RGAC RIDIP ROO QCBS SA SA SAC SFDI SOE SP SPPRED SPSED T A TOR USAID W G
Independent Procurement Audit Intemational Red Cross Intemational Shopping Intemational Standards on Auditing Limited Liability Company Monitoring and Evaluation Management Information System Ministry o f Justice Micro-Project Micro-Project Committee Micro-Project Preparation Minor Works National Shopping National Competitive Bidding Nongovernmental Organization Net Present Value Operational Manual Operations and Maintenance Public Expenditure Review Project Management Unit Participatory Monitoring & Evaluation Poverty Reduction Strategy Paper Promotion and Outreach Campaign Regional Grant Approval Committee Rehabilitation and Completion o f Irrigation and Drainage Infrastructure Project Regional Operational Offices Quality and Cost Based Selection Social Assessment Special Account Structural Adjustment Credit Social Fund for Development o f Internally Displaced People Statement o f Expenditure Service Provider State Program on Poverty Reduction and Economic Development State Program on Socio-Economic Development o f Regions Technical Assistance Terms o f Reference United States Agency o f Intemational Development Working Group
Vice President: Shigeo Katsu
Sector Manager: Alexandre Marc Task Team Leader: Julian Lampietti
Country Director: Donna M. Dowsett-Coirolo
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization.
AZERBAIJAN RURAL INVESTMENT PROJECT (AZRIP)
CONTENTS
A. Project Development Objective
1. Project development objective 2. Key performance indicators
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Ma in sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices
C. Project Description Summary
1. Project components 2. Key pol icy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements
D. Project Rationale
1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3. Lessons learned and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added o f Bank support in this project
Project Design Summary Detailed Project Description Estimated Project Costs Cost Benefit Analysis Summary Financial Summary (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Project Processing Schedule Documents in the Project Fi le Statement o f Loans and Credits
Annex 10: Country at a Glance Annex 1 1 : Summary o f Directory o f Operational Manual Annex 12: Social Assessment Summary Annex 13: Micro-project Cycle Flowchart
19 20 21
21 22
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23 26 34 35 37 38 46 53 55 56 57 59 60 63
MAP( S) IBRD No. 32775
AZERBAIJAN RURAL INVESTMENT PROJECT (AZRIP)
Project Appraisal Document Europe and Central Asia Region
ECSSD
Date: M a y 5,2004 Sector Managermirector: Alexandre Marc Country ManagedDirector: D-M Dowsett-Coirolo Project ID: PO76234 Lending Instrument: Specific Investment Loan (SIL)
Team Leader: Julian A. Lampietti Sector(s): Sub-national government administration (20%), Water supply (20%), Sanitation (20%), Roads and highways (20%), Power (20%) T h e W s ) : Rural policies and institutions (PI, Rural services and infrastructure (P), Participation and civic engagement (P), Infrastructure services for private sector development (P), Decentralization (S)
Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: 0.5%
Years to maturity: 35 Service charge: 0.75%
Financing Plan (US$m): Source Local Foreign Total BORROWER 1.30 I 0.05 I 1.35 IDA L O C A L COMMUNIT IES JAPAN: M I N I S T R Y OF F INANCE - PHRD GRANTS
12.56 1.23 3.14
2.44 0.22 0.16
15.00 1.45 3.30
Total: I 18.23 I 2.87 I 21.10 Borrower: GOVERNMENT OF AZERBAIJAN Ministry o f Finance Responsible agency: ASDAPS Project Management Unit in the Agency to Support the Development o f the Agricultural Private Sector Address: Cabinet o f Ministers, 68 Lermontov Street, Baku 370001, Azerbaijan Contact Person: Mr. Soubhan Asgerov, Director, Project Preparation Unit Tel: (994-12) 93 46 93 Fax: Email: [email protected] Estimated Disbursements ( Bank FYlUS$m):
The Project Development Objective i s for households in rural communities completing micro-project investments to improve living standards and increase the use o f infrastructure services. Micro-project investments in economic and social infrastructure will be identified and selected using demand driven processes. Funded micro-projects wil l be designed to increase access to and quality o f rural economic and social infrastructure (e.g. markets, roads, schools, clinics).
2. Key performance indicators: (see Annex 1)
The following indicators will measure progress towards the project development objectives:
0
Increased household access to and use o f local infrastructure; Improved operation and maintenance o f local infrastructure services; Increased participation of project beneficiaries in investment decision making and implementation.
B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported b y the project: (see Annex 1) Document number: 25790-AZ
The Country Assistance Strategy (CAS) for the period 2003-2005 i s organized into four strategic goals designed to help implement the Poverty Reduction Strategy Paper (PRSP), known as the State Program o n Poverty Reduction and Economic Development (SPPRED; approved by Presidential Decree o f February 20, 2003). The four goals are: (i) manage the o i l boom; (ii) generate jobs and non-oil growth; (iii) improve access to services; and (iv) help realize the o i l potential. The proposed project would support the Government’s efforts to generate productive employment, to reverse the decline in physical and social infrastructure, and to improve infrastructure access for the poor. The project i s included in the CAS and supports goals (ii) and (iii) by creating a vehicle for sustainable investment in rural infrastructure.
Date of latest CAS discussion: M a y 27,2003
2. M a i n sector issues and Government strategy:
Over the last decade, Azerbaijan has experienced many o f the same challenges as other CIS transition economies including severe economic contraction during the early 1990s, a concomitant deterioration in state services and infrastructure, and sharp increase in poverty, and a daunting agenda o f reforms needed to redefine the role o f the State and create the essential underpinnings o f a market economy.
Agriculture plays a central role in Azerbaijan’s economy. In 2003, the sector contributed 14 percent o f GDP (6.1 percent o f total exports) and employed 40 percent o f the workforce. In rural areas, over 90 percent o f the population have access to land and engage in farming. After the breakup o f the Soviet Union, agricultural output declined rapidly by more than 50 percent during 1991-1 995 and only recovered in 1997 after the adoption o f land privatization and other reforms promoting market-oriented production, free market prices, and the liberalization o f procurement and trade policies. Agriculture remains the second largest sector, with potential export markets in the Middle East, Europe, and the countries o f the former Soviet Union.
In the early 1990s rural Azerbaijan had relatively high levels o f access to infrastructure. However, the disintegration o f the state and collective farms once responsible for operating agricultural supply chains and maintaining infrastructure in rural areas, coupled with inadequate resource allocation, led to a rapid decline in rural services and infrastructure. This resulted in a decrease in the living standards o f the 4 mi l l ion people (50 percent o f the population) in rural areas. Fai l ing infrastructure, such as bad roads,
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power outages, and unheated schools, imposes very high transaction costs on rural households as they try to adapt to the fast pace o f the market economy.
The State Program on Poverty Reduction and Economic Development (SPPRED) describes the Government’s rural development policy. I t supports a comprehensive regional development policy designed to reduce disparities between Baku and the rural regions. The SPPRED also perceives improving access to and quality o f rural infrastructure services as crucial to improve the living standards o f the rural population and to provide a foundation for increased private sector activity. The Presidential Decree on measures to accelerate socio-economic development and the State Program on Socio-Economic Development o f Regions (2004-2008; SPSED) call for comprehensive regional development measures that include improvement o f infrastructure and utility service provision especially in rural areas and small districts. The State Program also emphasizes the need to increase local responsibility in managing infrastructure and utility service delivery. Limited access to resources and weak capacity o f local governments and communities represent major constraints to rehabilitating and managing rural infrastructure.
3. Sector issues to be addressed b y the project and strategic choices:
The project supports the SPPRED and SPSED by providing funding and capacity building for investments in local economic and social infrastructure. Improved access to rural infrastructure will not only directly improve the living standards o f the rural population, but w i l l also reduce transaction costs for producers, thereby encouraging economic activity.
The project design reflects several important strategic choices, including:
0 Community-driven approach - Community participation in the identification and management o f investments leverages greater local knowledge and resources than if this role were left to the central government. I t also encourages self-reliance and ensures stronger ownership, which in turn improves sustainability .
0 Matching grants versus credits - Matching grants are necessary to stimulate local investment in public infrastructure, such as roads, where the primary beneficiary i s the community as a whole. They complement existing World Bank projects that extend credit to small rural entrepreneurs. They also provide the project with the flexibility to operate in areas where poor people have difficulty accessing credit.
0 Targeted rural program versus national program - Nationwide the demand for rural infrastructure i s substantial and the implementation capacity i s limited. Further, rural settlements with population below 10,000 face different constraints and needs than larger settlements. The project will take a targeted approach, restricting interventions to selected economic zones and municipalities between 1,000 (including clusters o f smaller communities) and 10,000 inhabitants. For smaller communities clustering will allow more cost effective micro-project investment, project management, and capacity building. The project will demonstrate a model for stimulating rural investment that the Government could expand to other regions in the future.
C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):
The project has three components. Two components address key issues identified in Section B. The third component provides project management support. Each component i s summarized below:
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Component A -- Infrastructure. This component funds grants for approximately 350-450 rural infrastructure micro-projects. I t includes the identification, design and construction or rehabilitation o f rural infrastructure, based on the priority needs identified by communities. Potential investments include basic economic ( e g , rehabilitation o f secondary roads, water systems, electricity transformers) and social (e.g. schools and health clinics) infrastructure. The average size o f micro-projects i s US$35,000. Micro-projects over US$50,000 will require prior review by IDA and the project Working Group.
The recipient is the organization in the community that executes the microproject. Eligible recipients are municipalities, community based organizations (CBOs; including NGOs) registered as legal entities, or any other associations and organizations that IDA and the Borrower agree upon. Investments will be identified in consultation with communities, prioritized through local participatory planning processes, and appraised according to technical, financial, social, economic, institutional, and environmental criteria set out in the Operational Manual (OM). Generally, recipients will be responsible for a l l phases o f the micro-project, including preparation o f the proposal, contracting, implementation, and operations and maintenance (O&M). As needed, local NGOs and CBOs or other service providers (SPs) will provide support. Training needed at the community level will be built into the micro-project cycle and financed by Component B - Capacity Enhancement.
Component B -- Capacity Enhancement. This component funds training and technical assistance for project implementation. Sub-component B-1 will help create the required capacity o f involved local stakeholders, e.g. communities, recipients, and Regional Grant Approval Committees (RGACs). In the community mobilization phase, communities and recipients will be assisted in al l aspects o f micro-project development including completing problem analysis, needs assessments/prioritizations, and proposal preparation. Recipients will receive training in contracting, procurement, financial management, and participatory monitoring and evaluation (PM&E). Sub-component B- 1 also comprises a broad dissemination campaign which targets stakeholders at large and includes rayon and central government authorities. Sub-component B-2 will finance the long term professional staff and the short-term contract staff in the Regional Operations Offices (ROOs) in order to build the capacity o f ASDAPS and the government more generally to implement CDD-type rural investment projects, in line with the Government's view o f AZRIP as a model to be extended throughout the country. Sub-component B-2 will develop the capacity o f the P M U and three ROOs to appraise, supervise, monitor and evaluate the micro-projects (including participatory M&E). The capacity enhancement will take place through management, planning, on-the-job and other training, consultations, lessons-learned workshops, and use o f resource materials.
Component C -- Project Management. This component finances the administrative and operational project implementation and management costs, including hiring o f P M U professional staff and P M U and ROO support staff, travel cost and per diem, and support to the RGACs.
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2. Key policy and institutional reforms supported by the project:
Transfer of assets: The project includes investments with strong public good characteristics (e.g., roads, water supply, schools, health centers) for which municipalities are the appropriate body to assume responsibility for operation and maintenance. Existing legislation provides for the transfer o f ownership and management o f most o f these assets f rom the local representatives o f central government to the municipalities. However, both ownership and transfer often remain incomplete. The project Operational Manual contains guidelines for completing transfer o f assets before micro-project implementation. These guidelines require documentary evidence o f agreements with the relevant state bodies showing that the grant recipient has or wil l have ownership or usufruct rights to the asset.
Secure operating conditions: Ownership o f or usufruct rights to the asset may not be sufficient to safeguard future operation. If state bodies have the authority to affect the operation o f the infrastructure there needs to be some restraint o n arbitraq impositions. T h i s can be the case where a network operated by the state supplies the local infrastructure, such as in electricity and water supply. Operation could then be adversely affected by arbitrary imposition o f norms or increased tariffs, even in the case where assets are not connected to a state network. The project addresses this issue in two ways. First, during preparation representatives o f the relevant ministries were consulted to identify and agree on the norms and standards governing micro-project implementation. Second, the Operational Manual reflects these agreements and contains guidelines for documentary evidence required by the relevant state body, thereby providing protection f rom arbitrary impositions. Where applicable this can cover ownership and protection from arbitrary measures.
Creation of Community-Based Organizations: There is a risk that municipalities will not be truly representative due to l o w levels o f community solidarity and a natural tendency o f implementing agencies to try to make their task less complicated. To address this issue, the project includes community mobilization phase as wel l as model constituent documents for communities to establish CBOs, cooperatives and LLCs in the Operational Manual.
Timely registration of Community-Based Organizations: The grant recipient implementing a micro-project must be a legal entity. Municipalities are legal entities by law. With CBOs the experience to date i s that their registration process under the Law o n Nongovernmental Organizations (Public Associations and Funds) i s centralized in Baku and can be time consuming and opaque. The Development Credit Agreement contains a clause committing the Borrower to take necessary action to ensure that charters o f any CBOs whose proposals have been approved by the Regional Grant Approval Committees shall be registered as legal entities in accordance to the laws o f the Borrower in a timely manner. For cooperatives and LLCs, the registration process i s fairly simple and for LLCs the registration i s carried out at the regional offices o f the Ministry o f Justice. The project will provide technical support to accelerate the process o f registration o f local entities.
3. Benefits and target population:
Benefits will occur at three levels:
0 Individual benefits. Individuals in rural communities wil l have access to improved infrastructure and new economic opportunities, raising living standards and promoting economic development.
0 Community benefits. Community organizations will be empowered to identify, design, operate and maintain investments based on their needs and priorities. Ultimately this wil l increase the sustainability o f
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investments and foster a grass-roots culture o f self-help.
a Institutional benefits. Local and central government will have increased exposure to decentralized decision-making and mechanisms that encourage transparency and accountability.
The project targets rural communities including clusters o f smaller communities (greater than 1,000 and less than 10,000 people) in three economic zones, the lowlands of Shirvan, Mugan-Salyan, and Nakhchivan.
4. Institutional and implementation arrangements:
Institutional arrangements
The project will be under the general management of the Agency for Support o f the Development o f the Agricultural Private Sector (ASDAPS) under the Cabinet o f Ministers. Institutional arrangements occur at three levels:
Community level - The recipient i s the organization in the community that executes the project. Eligible recipients are municipalities, community-based organizations (CBOs; including NGOs) registered as legal entities, and any other associations or organizations that IDA and the Borrower agree upon. Responsibilities include preparing project proposals; contracting o f goods, works, and services; and regular disclosure o f information to the beneficiary community and AZRIP project management on the status o f micro-project implementation and accounts. If the recipient owns the infrastructure, it would be responsible for the operations and maintenance o f the asset after micro-project completion. In case the recipient is different f rom the legal owner, it would support the appropriate legal entity (e.g., if primary schools are legally the responsibility of the municipality, the recipient would support the municipality through a Parents-Teachers Association). They would report to the Regional Operations Offices o f the Project Management Unit (PMU).
Micro-project Committees (MPCs) - MPCs are committees established in rural villages, assisting the villages to identify their priorities in formulating proposals for micro-project grants, and assisting the recipients to implement the micro-project proposals. MPCs consist o f approximately five to eleven voluntary members elected by the people in rural village(s).
Regional level - Regional Operations Offices (ROOs) located in the three target economic zones would be responsible for daily project management, the establishment o f regional micro-project grant approval committees (RGACs), and the preparation of regional annual investment strategies and budgets. They will coordinate wi th raion authorities, c iv i l society, private sector, and communities. They will apply the Operational Manual; promote, register, and appraise micro-projects; prepare cooperation agreements with recipients to be signed by the PMU; supervise procurement by recipients; impart training on contracts and procurement; and supervise, monitor and evaluate micro-projects. They will provide the P M U in Baku with monthly and quarterly progress reports through the Management Information System (MIS). The ROOs are staffed by the PMU. The staff includes a broad s k i l l mix enabling them to carry out appraisal, contracting, supervision and monitoring o f micro-projects. The ROOs will be disbanded after project completion.
Regional Grant Approval Committees (RGACs) - Located in the three target economic zones, RGACs would review the processing of al l registered MP-proposals and approve or decline appraised micro-project proposals before grants are awarded. RGACs will also address complaints received from stakeholders with
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regard to the MP-cycle. The RGACs will include seven members: one representative from local government (municipal council), one representative from local executive authorities (Ex-Com), one local representative each fi-om the Ministries o f Agriculture and Economic Development, and three representatives from civil society. The Ex-Com and local government representatives will be drawn from the raions in which micro-projects have been developed for approval by the RGAC. When micro-projects from more than one raion are to be considered by the RGAC, local government and Ex-Com representatives from each raion will participate in the voting to approve the micro-projects from that raion. Each Regional Operational Office (ROO) Director will serve as the non-voting Secretary o f the respective RGAC. One member o f civil society will be replaced each year.
National level - Institutional arrangements at the national level (based in Baku) include the Project Management Unit (PMU) to be established within ASDAPS and a Working Group. Their composition, roles and responsibilities are as follows:
Project Management Unit - The P M U has several functions: (i) Report to and act as secretariat for the Working Group on issues related to the Operational Manual. (ii) Identify lessons leamed and incorporate them in project implementation. (iii) Screen ROO budget proposals, submit micro-project proposals exceeding US$50,000 to the Working Group and IDA, and prepare quarterly reports. (iv) Coordinate regional monitoring and evaluation. (v) Conduct internal financial, management and technical audits (ensure the project operates according to procedures in Operational Manual). (vi) Disburse funds to grantees. (vii) Procure services o f SPs. (viii) Provide institutional support to the ROOs, including guidance and supervision on finance, administration and procurement, operation o f the management information system including a web-based interface providing information about the project, application o f the Operational Manual, functioning o f the RGACs, and monitoring and evaluation. P M U staffing i s described in the Operational Manual. The P M U wi l l be disbanded after project completion.
Working Group - ASDAPS (Agency to Support the Development o f the Agricultural Private Sector) would establish a Working Group to review the O M at least on a quarterly basis and formulate and adopt revisions to the OM. Revisions to the O M are subject to IDA’S no objection. The WG would also review RGAC decisions on micro-projects over US$50,000. The WG will consist o f relevant representatives from Ministry o f Economic Development (SPPRED Secretariat, Secretariat o f Regional Development Program), Ministry o f Agriculture, the Parliamentary Commission on Decentralization and Municipal Development, and Chairpersons o f RGACs (Regional Grant Approval Committees) once the latter are established.
ASDAPS Steering Committee - The existing ASDAPS Steering Committee would provide general oversight and organize external audits o f the PMU.
Project duration - Project implementation i s anticipated to take four years, from October 2004 to September 2008, with the Credit Closing Date being March 3 1,2009.
ImDlementation arrangements
The project implementation arrangements are described in detail in the Operational Manual (OM). The O M was designed based on experiences o f comparable programs in Azerbaijan and on best international practice. I t outlines the project’s main policies and guidelines as well as comprehensive operating procedures. The project preparation unit i s developing the O M in two stages: (i) a first draft was finalized for appraisal and wi l l be presented to the Board; (ii) a final version acceptable to the IDA will be presented by effectiveness. The outline o f the OM i s attached in Annex 11. The O M addresses the following implementation issues:
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Community targeting - Villages and/or communities, including clusters o f smaller communities, with a population greater than 1,000 and less than 10,000 will be eligible to participate in the project. Those below 1,000 inhabitants can associate with neighboring villages to meet the population threshold. Eligible proposals have to be endorsed by community members with adequate representation o f community groups as detailed in the OM. The proposals have to include information on appraisal criteria such as presence o f or efforts to create community groups, participation in training programs, statement confirming the communities’ Beneficiary Investment Share (BIS), micro-project description and implementation plan, and operation and maintenance plan. Simple, transparent eligibility and appraisal criteria are described in detail in the OM.
Community mobilization - community mobilization involves meeting wi th key community leaders and groups; conducting Participatory Rural Appraisal, needs assessment and priotarization; and establishing and training the micro-project committee (MPC).
Communityhenejiciary investment share (BIS) - Communities are required to provide a share o f the micro-project investment costs. Micro-projects require a minimum beneficiary investment share o f 5 percent o f the micro-project investment amount in kind, and o f 5 percent o f the micro-project investment amount in cash, for a combined B IS o f at least 10 percent o f the investment cost. The cash amount will be deposited into the recipient’s bank account.
Micro-project appraisal - Regional Operations Offices (ROO) will conduct appraisals in full cooperation w i th the micro-project committees, the municipalities, and the recipients (if different). Detailed appraisal criteria covering the entire scope o f micro-project design, implementation, and operation are included in the OM. In order to ensure local capacity building during appraisal, the ROOs will work with beneficiaries to adjust M P design to local capacity while maintaining the highest possible level o f standards and maximizing local resource use and impact.
Participatory monitoring and evaluation (PM&E) - The recipients and beneficiaries wil l participate in regular qualitative self-evaluations to measure their satisfaction with improvements resulting from the micro-project. They wil l also assess the micro-project’s physical achievements. In this way, the recipients and beneficiaries will provide inputs to the M&E o f the program. AZRIP will install a management information system (MIS) based inter alia on “lessons-learned” f rom the participatory M&E exercises in the program.
D. Project Rationale 1. Project alternatives considered and reasons for rejection:
No project - The opportunity cost o f not undertakmg a project i s very high. At the beginning o f the 1990s, Azerbaijan was well endowed with infrastructure assets. Since the collapse o f the Soviet Un ion and central planning, these assets have been deteriorating. Deterioration will soon become irreversible and the replacement cost will far exceed the cost o f rehabilitation.
Central government only - The project could be designed to support the delivery o f investments by the central government. This would not be consistent with the Government’s decentralization agenda or with the appropriate scaling up o f cost effective investments. Furthermore, municipalities are autonomous bodies reporting to their constituencies, not to a line ministry. N o single ministry is responsible for rural development and decentralization. The lund and scale o f the micro-projects i s such that the decisions about
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investments should be made at the local level.
Bank-financed Deteriorated irrigation infrastructure and absence o f management at farm level
Incomplete agricultural reform (land registration and farm advisory services) and lack o f rural credit
Deteriorated urban water distribution systems and inadequate company management
Deteriorated irrigation and drainage infrastructure
High gas losses, inadequate protection o f network assets
Poverty o f intemally dsplaced people L o w effectiveness and financial viability o f irrigation water distribution
Municipalities only - Eligible beneficiaries could be limited to municipalities only. This alternative was rejected because one project objective is to engage the municipal authorities with their constituents to improve institutional capacity and sustainability at the local level.
Farm Privatization Project (Credit 2933-AZ)
Agricultural Development and Credit Project (Credit 3236-AZ
Greater Baku Water Supply Rehabilitation Project (Credit 275 l-AZ)
Rehabilitation and Completion o f Irrigation and Drainage Infrastructure Project (Credit 3390-AZ)
Gas Rehabilitation Project (Credit 2923-AZ)
Pilot Reconstruction Project Irrigation Distribution System and Management Improvement
Predefined investments - Investments could be identified during preparation and implemented through the duration o f the project. Given the small scale o f the investments, th is would have required costly project preparation. Further, it would not empower communities to identify their own needs and design their own investments, limiting the opportunity to develop institutional capacity and reducing the chances o f sustainability . Credit - Instead of relying o n grants to finance micro-projects, the project could offer credit to the beneficiaries. However, a large number of NGOs and donors, including the Wor ld Bank, have opened credit lines. The Wor ld Bank Agricultural Development and Credit Project (ADCP) is active in 7 raions o f AZRIP project areas. Rather than offer additional credit, the project will provide technical assistance to help households and communities access existing credit lines.
2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).
Sector Issue Project I Latest Supervision
(PSR) Ratings (Bank-finance Implementation
Progress (IP)
S
U
S
S
S
S S
projects only) Development
Objective (DO)
S
U
S
S
U
S S
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and management I Project (Credt 3 390-AZ)
United States Agency for Intemational Development, Intemational Foundation
(IFAD)
Infrastructure service delivery and local institutions capacity
Asian Development Bank Rehabilitation o f water supply systems (exploration stage)
for Election Systems and the Eurasia Foundation
Islamic Development Bank
Kreditanstalt fur Wiederaufbau / Gesellschaft f i r Technische Zusammenarbeit
Public Private Infrastructure Advisory Facility (ongoing studies)
Ibuilding
Irrigation and water supply, road rehabilitation
Food security, agriculture development
Need to restructure energy sector and attract private participation in electricity and gas distribution
I
3. Lessons learned and reflected in the project design:
Involve key stakeholders at all levels early in project design and preparation. The project was developed with participation o f government agencies and local stakeholders, including civ i l society, NGOs, and parliament. Strategies to work with stakeholders at community level and build government commitment were piloted during preparation and integrated into project design.
Incorporate pilot project experience. Eurasia Foundation (EF) and the Wor ld Bank piloted four micro-projects for infrastructure development in T o w , Agstafa and Gazakh. An innovative model was tested in which both the community and the municipality worked together on micro-project implementation. A local NGO facilitated the process throughout, beginning with assisting the municipalities in mobilizing communities, setting up micro-project committees (MPCs), and providing training to both the MPCs and the municipalities. The NGO support ceased at completion o f micro-projects. Local communities elected the MPC members who, along with the municipalities, were responsible for accountable and open decision-making. Findings and recommendations from the pi lot project have been incorporated into AZRIP design.
Successful technical assistance needs to put in place sufficient capacity and sustainable behavioral change. Capacity to implement a community driven project is l o w in Azerbaijan. Therefore, the project design includes significant local and national level capacity building activities during MP implementation. Training and technical assistance will be provided to prospective beneficiaries throughout the project
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identification, selection, and implementation phases, including for processes such as consensus building, planning, management, and budgeting. Capacity building and information dissemination will specifically target municipal and raion authorities as well as the RGACs to ensure adequate collaboration on the project’s innovative community driven approach. Capacity building services will also be provided to the national and regional level s ta f f in charge o f implementation o f AZRIP so that they develop the ski l ls and knowledge needed to appraise and supervise the micro-projects.
Ensure adequate implementation, procurement, and financial management capacity within the implementing agency. Implementation capacity in Azerbaijan i s limited and may adversely affect project sustainability. An experienced counterpart has been selected for project implementation (ASDAPS has managed two World Bank projects before). In addition, a management information system i s designed to integrate physical indicators with accounting indicators. The Operational Manual describes the micro-project cycle, procurement, disbursement, and standards and norms. The operations o f the PMU wi l l be closely monitored and the performance wi l l be measured against specific indicators. Substantial support wi l l be provided to communities implementing the micro-projects.
Build on lessons learned from other demand driven projects in Azerbaijan. The project design builds on the experience o f institutions that have implemented demand driven projects in Azerbaijan. These institutions have a number o f ongoing projects in public service delivery and institutional capacity building. During project preparation innovative public accountability mechanisms were piloted with the help o f local CBOs. The community participates in micro-project identification and implementation, micro-project accounts are posted in conspicuous places, contractors are subject to open competitive bidding, and monitoring i s done by the MPC. Payments to contractors are also approved by the MPC. In addition, MPCs meet regularly during the construction period and report back to the community.
4. Indications of borrower commitment and ownership:
The SPPRED and SPSED explicitly mention the need for strengthening local government and increasing community involvement. In addition, the government has prepared an action plan for regional social and economic development to improve rural infrastructure and service provision. T h i s plan emphasizes the need to increase local responsibility in managing the infrastructure and utility service delivery. It also promotes technical and financial services for private sector development, notably agriculture processing and marketing, in order to increase employment in rural areas. The Government o f Azerbaijan has demonstrated its commitment to decentralization by passing a full set o f decentralization laws. Further, in 1999 the Parliament established a specific commission on municipal matters, in order to identify and address problems at the municipal level through implementation o f an adequate legislative framework.
5. Value added of Bank support in this project:
The World Bank brings to this project a unique understanding o f rural poverty and strategies to address it. In addition to supporting the Government with low cost financing for technical assistance and investment, the World Bank provides and mobilizes strong technical expertise in the areas o f community-driven development and decentralization.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)
1. Economic (see Annex 4): 0 Cost benefit 0 Cost effectiveness 0 Other (specify)
NPV=USS million; ERR = YO (see Annex 4)
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Ex-ante economic analysis was completed for a typical sample. investment in a rural dnnking water supply system for 700 households. The investment consist o f an artesian wel l with a small piped system targeting households that at present use spring, rivers, lakes or canals.
The investment benefits are:
investment situation (quantified); e
e FiRy percent savings in private households’ economic cost per liter o f water as compared without
Improvement in health conditions (not quantified); Savings in water treatment cost (chemicals, boiling; not quantified); Improved attractiveness o f village to investment (not quantified); Increase in community’s capacity for solving problems (not quantified).
Investment cost o f the project (AZRIP grant and beneficiary investment share), including overhead
e Annual operations and maintenance cost o f the system (to be covered by beneficiary
N o negative external effects to the environment or other water users are expected to arise from the
Net benefit associated with increased water consumption (quantified); e
e
e
e
The investment costs are:
for project management and monitoring and technical assistance to the community;
households’contributions to operations and maintenance fund).
investment.
e
e
The lower bound estimate (i.e. quantified benefits only) o f the economic rate o f return (ERR) i s 15.7 percent. A 12 percent discount rate results in an economic net present value o f AZM 55.9 million. Including non-quantified benefits would substantially increase the return on investment. The ERR i s most sensitive to changes in the amount o f time saved from not collecting water.
Given the large number o f micro-projects, full economic analysis wil l not be carried out for each one. However, economic criteria are part o f the micro-project appraisal process described in detail in the Operational Manual. Acceptable micro-projects are: (i) identified in a participatory manner; (ii) o f acceptable technical quality; (iii) realized at reasonable prices; (iv) financially sustainable, and (v) do not harm the environment. Ex-post evaluations o f selected micro-projects will evaluate the technical quality o f investments as wel l as the process o f participation, implementation, and O&M. For a selected number o f micro-projects, pro-forma economic analysis and socioeconomic surveys will be undertaken to assess improved service access.
2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4)
Crowding out. Since the project complements government resources, project investments are not expected to crowd out Government or private fhnding o f infrastructure projects.
The Government o f Azerbaijan will receive an IDA credit to co-finance MP investment cost and the recurrent cost associated with project implementation. Capacity building under the project will be co-financed by a Japanese PHRD grant. The Government’s own contribution i s US$1.35 mi l l ion over 4 years, representing 6.4 percent o f total project costs. The IDA credit wil l not generate any cost to the Government over the project period except the commitment fee and service charge. However, the Government as the recipient o f the IDA credit will have to generate revenues in foreign currency to service the IDA credit. Taking into account the expected future inf low o f foreign currency from o i l sales,
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generating the necessary revenues to service and repay the credit i s not expected to pose a problem.
Crowding in. AZRIP encourages ownership by requiring a significant share o f the micro-project investment to be paid up front by participating communities. This results in crowding in o f funds from the beneficiaries. Micro-projects require at least 10 percent Beneficiary Investment Share, o f which at least 5 percent in cash. This will amount to a minimum o f about USS1.46 million to be financed by the communities, or about 6.9 percent o f total project cost.
Fiscal Impact:
Recurrent costs and operations and maintenance arrangements for micro-projects. As part o f the appraisal process and review o f the sustainability plan, a financial analysis wi l l be carried out for each MP to assess the recurrent cost o f the micro-project. Participating communities w i l l be required to submit a detailed O&M plan that wi l l include estimates o f the O&M costs and the financial contributions o f users and local governments to cover these costs. In the short term, the project investments will not generate revenues beyond those required for O&M and replacement. Over the longer term, by reducing transaction costs, the MPs will increase local economic activity and are expected to generate higher tax revenues for the government. Since the Project also strengthens the capacity o f local governments and communities to take responsibility for local development, it i s also expected to alleviate the dependence on central government transfers over time.
3. Technical:
During project identification and preparation a number o f tools were used to identify communities’ investment priorities, these include: (i) a survey o f rural infrastructure; (ii) a qualitative social assessment; and (iii) a quantitative social assessment. The l i s t o f eligible investments may be expanded to accommodate additional critical investments on a case-by-case basis, based on actual community priorities.
Project investments are based on appropriate technology for the needs and ski l ls o f local communities. The majority o f technologies to be promoted under the project have already been tested and validated in Azerbaijan under other projects such as the two Social Investment Initiative projects by CHF, the World Bank financed SFDI project, the Community Driven Development pilot projects by Eurasia Foundation and World Bank, and the World Bank’s Farm Privatization and Pilot Reconstruction projects.
Cost estimates for the proposed investments are based on actual unit costs o f s imi lar interventions carried out by SFDI, Eurasia Foundation, and CHF. Overall cost estimates are a f i rst best approximation, as actual costs will depend on the mix o f activities adopted by communities in each one o f the three target zones. The Operational Manual addresses technical norms and standards. Regular internal and external technical audits will be undertaken to ensure that construction i s o f appropriate quality and meets the required technical standards. This would also include an independent technical audit at mid-term review.
4. Institutional:
4.1 Executing agencies:
The project will be executed by a P M U established in the ASDAPS. ASDAPS has experience managing World Bank projects and has successfully managed decentralized community-based procurement activities and worked closely with local NGOs on implementation o f projects. The ASDAPS Steering Committee will
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provide general oversight and organize external audits o f the PMU. The P M U will organize a Working Group that will formulate and adopt revisions to the OM which are subject to IDA’S no objection. The WG would also review decisions o n micro-projects over US$50,000. The PMU’s Regional Operations Offices (ROOs) will establish Regional Grant Approval Committees (RGACs) to review processing o f a l l registered MP-proposals and approve or decline appraised micro-project proposals before issuing cooperation agreements wi th the PMU. The ROO staf f w i l l include a broad skill mix enabling them to carry out appraisal, supervision and monitoring o f micro-projects. Consultants, staff f rom CBOs and local NGOs and municipal associations will support them.
Accountability for managing project resources at the community level will be addressed. The requirements for financial management and disclosure at the community level are described in detail in the Operational Manual. Difficulties with financial management may be exacerbated by the opaque and onerous tax and reporting regimes. This issue i s addressed by (i) including information in the Operational Manual on how to form an organization, meet accounting, legal and reporting requirements, tax and other laws, and respective responsibilities and powers o f the organization, state bodies and the municipality with respect to operation of the various kinds o f investments; (ii) reviewing these issues during micro-project identification and preparation activities; and (iii) including in the micro-project proposal the requirement for a budgeted plan for operation and maintenance.
4.2 Project management:
The PMU in Baku is responsible for project management. I t will receive support and training in areas o f procurement, project management, disbursement and reporting. The PMU i s a coordinating body, supervising the ROOs, and providing them with institutional support. The ROOs are responsible for day to day project management and training will be provided in the areas o f community development, micro-project design and appraisal, c o m k n i t y based procurement, project management, disbursement and reporting.
Project management capacity at the community level is a concem. Local capacity building is generally more cost-effective when undertaken by international and national NGOs. There are a broad range o f NGOs involved in similar activities. The activities and capacity o f these NGOs were reviewed in detail and in collaboration with the P M U it was determined that there was sufficient capacity among these organizations to outsource local capacity building activities.
4.3 Procurement issues:
The Country Procurement Assessment Report (CPAR) dated June 2003 analyzed Azerbaijan’s public procurement system including legislative framework, the effectiveness o f i t s regulatory institutions, the strength o f i ts enforcement regime, the capacity o f i t s institutional and human resources, performance on Wor ld Bank-assisted projects and the threat o f corruption. I t i s found that whilst an appropriate and competent regulatory framework has improved, the environment for conducting public procurement in Azerbaijan i s medium- to high-risk. In procurement o f World Bank-financed projects, the CPAR identified problems on taxation and customs clearance procedures, bank issuance o f bid securities, and technical procurement knowledge on the part o f PMU staff.
An Independent Procurement Review (IPR) o f five IDA-financed projects in Azerbaijan, was conducted in M a y 2002. IPR identified the fol lowing common operational issues related to procurement: (i) lack o f procurement planning resulted in ad hoc procurements, non-competitive procurement methods and higher prices; (ii) insufficient procurement expertise and capacity in project PMUs, specifically with respect to conducting national competitive bidding and intemational competitive bidding; (iii) poor contract administrations, specifically o f works contracts; and (iv) poor procurement record management.
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The AZRIP-PMU to be established under ASDAPS would be responsible for managing procurement activities under the project. A procurement capacity assessment was carried out and concluded that the ASDAPS has gained substantial experience with World Bank procurement procedures during the implementation o f the Farm Privatization Project and the Agriculture Development and Credit Project. ASDAPS has two experienced and wel l trained procurement specialists. One o f them is assigned to work for AZRIP 50 percent o f the time. There is also a newly hired procurement assistant who has limited experience and n o training on procurement. The procurement assistant will work under the guidance o f the experienced procurement specialist.
A s the AZRIP-PMU i s a newly established unit and will only get limited support f rom ASDAPS from procurement management point o f view, the project's procurement implementation capacity has been rated as "high risk". In order to address the capacity problems, the project will provide procurement training to the procurement assistant in the P M U and procurement officers in ROOs. An action plan has been prepared to strengthen the PMU's capacity to administer procurement under AZRIP in an efficient way.
In AZRIP, recipients will procure works, goods and services for micro-projects. Procurement under micro-projects shall be carried out in accordance with "Manual for Conducting Very Small Value Procurements under Wor ld Bank / IDA Small Grants, Loans and Credits" dated September 2003. The detailed procurement arrangements are described in the Operational Manual. Training on compliance with the procurement procedures will be provided as part o f the capacity building and technical assistance imparted by service providers.
4.4 Financial management issues:
Overall responsibility for financial management o f the project will rest with the PMU. The World Bank conducted financial management assessment o f the PMU and concluded that its financial management arrangements are satisfactory and acceptable to IDA. Financial Monitoring Reports (FMRs) wil l be used for project monitoring and supervision. The same financial management system will be used for both the IDA Credit and the PHRD co-financing grant. The P M U wil l produce FMRs quarterly throughout the l i fe o f the project, to be submitted to the IDA no later than 45 days after the end o f each subsequent calendar quarter. Simplified financial reporting will be used for monitoring micro-project expenditures and f low o f funds at the community level, to be consolidated at the P M U level for overall project reporting.
F low o f Funds. The project will disburse under traditional disbursement procedures through the Special Account, direct payments, reimbursements on basis o f Statements o f Expenditures (SOEs), and Special Commitments. The Grant for the micro-projects wil l be disbursed through transfer o f funds to local bank accounts opened at the regional level. Replenishments o f advances to the local bank accounts will be made in subsequent tranches (usually two or three) as defined in the cooperation agreements. After the initial tranche, subsequent tranches wil l be released after disbursement o f 70 percent o f the previous funds and submission o f Statement o f Expense with supporting documents (financial statements, copies o f receipts, physical progress reports, bank statements). Since the borrower wil l be empowered to manage and account for funds w h c h are advanced from the Special Account, it i s necessary to ensure that minimum safeguards are put in place. The PMU will have the overall responsibility for maintaining proper books o f accounts for the project funds, allocate funds to the decentralized locations based o n identified and justified implementation needs, and closely supervise and monitor th is decentralized f low o f funds for the prior tranche.
Although the grant tranches will be disbursed o n the basis o f micro-project progress, the borrower, the PMU, and, ultimately, the grant recipients have the responsibility to ensure that grant funds are used only
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for the purposes for which the grant was intended. In this context, the PMU will require the recipient o f each micro-project grant to maintain a financial management system that clearly identifies al l receipts and expenditures o f the micro-project and distinguishes these from the grant recipient’s other receipts and expenditures. In addition to the grants, the participating communities will be required to contribute 10 percent o f the micro-project financing in cash and in-hnd. The cash contribution will be deposited in local bank accounts upon signing o f the Cooperation Agreement between the P M U and the respective community representative.
Auditing Arrangements. The audit of the project will be conducted by independent auditors under terms o f reference acceptable to IDA, and in accordance with International Standards o n Auditing (ISA) promulgated by the International Federation o f Accountants (IFAC). The annual audited project financial statements will be provided to IDA within six months o f the end o f each fiscal year and also at the closing date o f the project. The contract for the audit will be awarded during the f i rs t year o f project implementation and thereafter, extended fi-om year-to-year with the same auditor, subject to satisfactory performance. Financial audits of the project accounts will be financed under the Credit. Financial audits for the PHRD co-financing grant will be financed also under the Credit. The PMU will also have an internal auditing unit, that will continuously audit the appropriate application o f operational procedures. The main purpose o f the internal audit i s to verify an evaluate the efficiency, effectiveness and overall compliance with operational procedures for the implementation o f the project and the micro-projects. Such procedures are outlined in the Operational Manual.
The Azerbaijan Country Financial Accountability Assessment diagnostic work carried out in 2002 recommended accounting and auditing regulatory and institutional reforms to increase accountability and good governance in the country. The proposed reforms are addressed in three Poverty Reduction Strategy Credits (PRSCs). In particular, enactment o f the new Accounting Law and related secondary regulation mandating use o f International Financial Reporting Standards (IFRS) for public interest entities and governmental enterprises and International Public Sector Standards (IPSA) for the public sector. The L a w will assure greater transparency and accountability o f public finds. In parallel, the enactment o f the new Audit L a w and establishment of regulatory and institutional frameworks for the Chamber o f Accounts, the Country’s Supreme Audit Institution and the Chamber o f Auditors, the audit profession regulators and standard-setters wil l provide greater transparency.
5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from th is analysis.
No major environmental issues are associated with the activities proposed under the project. However, possible concerns could include environmental impacts during micro-project implementation. Given that specific investments will only be identified in the course o f project implementation, a procedure for screening and assessing negative environmental impacts as wel l as developing mitigation plans has been developed. The procedure emphasizes identification o f non-conventional, environmentally friendly approaches to solving problems such as wastewater treatment, conforms to guidelines established by the World Bank and the Government of Azerbaijan, and is included in the Operational Manual.
5.2 What are the main features of the EMP and are they adequate?
Given the demand-driven structure of investments (Le., micro-projects are not identified prior to appraisal, only a negative l i s t exists) the project i s classified as a Financial Intermediary. Therefore, rather than carrying out an environmental assessment as part of project preparation, a mechanism for screening micro-projects for their environmental impact was designed. Environmental assessments will be carried out
Environmental Category: F (Financial Intermediary Assessment)
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for specific micro-projects andor project sites as appropriate. Environmental advisory services are provided to micro-project applicants by SPs and ROOs, supported by consultants contracted to assist with specific tasks as needed . The services comprise training, assistance in project screening, and advise on suitable mitigation measures.
5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: NA.
5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?
Stakeholders wil l be consulted init ial ly through the project familiarization and outreach activities at each project site. Impacts are confined to the local level, and community residents will participate in the definition and planning o f micro-projects. Further consultation wil l be called for under the EMP if the environmental screening determines that other communities would be affected.
5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP?
The Operational Manual provides details for environmental screening and assessment o f micro-projects and project sites. An Environmental Management Plan (EMP) has been prepared by the Borrower prior to appraisal and is included as a chapter o f the Operational Manual. The EMP provides guidance to project participants regarding screening pr ior to selection o f micro-projects for financing, identification o f potential environmental impacts o f the l ikely micro-projects to be financed, planned mitigation measures, identification o f parties responsible for mitigation, and a monitoring plan to track compliance with sound environmental management practices during construction and operation o f micro-projects. The PMU i s responsible for ensuring that environmental management and mitigation plans are fully implemented.
6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.
During preparation, a social assessment (findings summarized in Annex 12) identified (i) lack o f infrastructure and resulting high transaction cost and (ii) limited local participation, responsibility and accountability as key social development issues.
The areas covered by the social assessment are characterized by poverty, l o w living standards, and lack o f income generating opportunities. Whi le poverty i s widespread, relatively better o f f areas enjoy better infrastructure conditions and access to services. This holds true for basic infrastructure such as roads, energy and water supply as wel l as social infrastructure such as schools and health care facilities. Among general priorities, basic infrastructure (energy supply, drinlung water, roads, irrigation water) is currently a more important issue for villagers than agricultural processing or unemployment. The villagers are generally well aware o f the link between investments in infrastructure and improved living conditions as wel l as potential for increased economic activity due to lowered transaction costs.
Participatory processes in rural areas are very traditional, and it i s typically middle age and elderly men who make decisions and participate in meetings where important matters are decided. Women, youth, and internally displaced people (IDPs) are usually not included in the decision-making processes. Local participation and government accountability are s t i l l limited. In many villages, the municipalities are not yet really representative organizations. Villagers have not yet leamed to trust them. In general, there i s still l ittle knowledge about municipal affairs and rather l imited cooperation and inclusion o f villagers into the
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affairs o f municipalities.
By investing in infrastructure and local capacity and by having municipalities, other implementing partners, and communities cooperate with each other, AZRIP addresses key social development priorities o f rural Azerbaijan. The project’s short-term social development outcomes are improved living standards and reduced transaction costs for the beneficiaries o f participating communities. The long-term social development outcomes will be economic development, enhanced civic culture, empowered communities and a move toward local level institutional sustainability. A mid-term social review will be undertaken to assess whether expected outcomes have materialized and make suggestions for modifications in the project design in order to ensure that social development outcomes are achieved.
6.2 Participatory Approach: H o w are key stakeholders participating in the project?
Communities wil l participate in defining their priority needs through the activities built into the community mobilization and capacity building process. Th is will improve communities’ ability to organize, prioritize their needs, and build up sk i l l s for micro-project development, implementation and subsequent management. Communities will develop micro-project proposals and manage implementation through a legal implementing entity o f their choice. They also participate in M&E activities at the local level.
6.3 H o w does the project involve consultations or collaboration with NGOs or other c iv i l society organizations?
National and intemational NGOs are actively involved in community development in Azerbaijan. They have been consulted during project preparation o n an individual basis or through workshops. Regular seminars with the NGO community were held to present drafts o f the Operational Manual and findings from project preparation studies, such as the Social Assessment. NGOs may serve as Service Providers (SPs) for implementing the community mobilization and capacity building activities financed by the project.
6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes?
The social assessment identified the main social problems and proposed institutional arrangements to ensure that the project achieves i t s social development outcomes. These arrangements are included in the Operational Manual. They include outreach and participatory activities, civic training, user group formation and the participation o f local government. Representatives f rom communities and civ i l society are involved in project management at the local, regional, national levels.
6.5 H o w will the project monitor performance in terms o f social development outcomes?
The main aim o f monitoring social development outcomes i s to generate feedback to improve project implementation, as wel l as to monitor progress toward achieving project objectives. The management information system records and reports on these measures. The indicators include an assessment o f level o f community satisfaction with public services and the performance o f their local governments -- both prior to and following micro-project implementation. The key performance indicators help identify the training needs o f micro-project committees, municipalities and grant recipients (if different).
7. Safeguard Policies:
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Pest Management (OP 4.09) 0 Yes 0 No Cultural Property (OPN 11.03)
7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.
For micro-projects where safeguard policies apply, the Operational Manual defines the measures to be carried out in accordance with World Bank guidelines. This includes an environmental management plan framework. The likelihood that micro-projects w i l l trigger safeguard policies was assessed during project preparation and evaluated as very low. Micro-projects that include land or building expropriation are not eligible for grants through this project. Under the Environmental Management Plan (EMP) framework, the operations manual contains procedures for handling chance finds o f cultural property.
0 Yes 0 N o
Under the Component A o f the proposed project, micro-projects are likely to be developed inter alia on rivers flowing into the Caspian Sea, which i s an international waterway for purposes o f the World Bank's Operational Policy on Projects on International Waterways (OP 7.50). The Government accordingly notified the Caspian riparians about the project on March 18,2004, with a request for any comments to be received by May 20,2004.
Indigenous Peoples (OD 4.20) Involuntary Resettlement (OP/BP 4.12) Safetv of Dams (OP 4.37. BP 4.371
The proposed micro-projects under AZRTP would not produce a noticeable change the abstraction volumes o f the systems and would not have an adverse change to the quality or quantity o f river water flows, while the works would not change the nature o f the original systems. The proposed project would have no impact on the quality or quantity o f the river flows in the upper riparian countries. There would also be no impact on the Caspian Sea, since there would not be a significant adverse change to the quantity and quality o f water flowing to the Sea. Similarly, water use in the riparian countries around the Caspian Sea would not affect the project.
0 Yes 0 No 0 Yes 0 No 0 Yes 0 No
F. Sustainability and Risks 1. Sustainability:
The PMU i s a temporary institution that wi l l be disbanded at the end o f the AZRIP. Therefore the project design emphasizes sustainability o f activities financed under the AZRIP. The project addresses sustainability in the following manner:
infrastructure by providing training in needs assessment, planning, financial planning and management; Increasing the capacity o f local organizations to manage and deliver economic and social
Prioritizing investment needs based on the perceived needs o f communities, thereby creating an
Only investing in projects for which the community has put down a Beneficiary Investment Share
Preparing credible plans for micro-project operation and maintenance.
Promoting community involvement;
incentive to maintain and operate the facilities in a sustainable manner;
that shows the community's commitment to and need o f the micro-project, and increases the local incentive to effectively use resources and maintain the infrastructure; and
Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)*
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0 Yes 0 No 0 Yes 0 No
2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):
Risk From Outputs to Objective Lack o f support and commitment from regional and national government.
Non-transparent selection o f participating grantees.
ROO and Regional Grant Approval Committees do not fol low criteria for selection o f micro-projects.
Imbalance between central oversight and control and local evaluation o f investments. Ownership o f local assets not clarified.
From Components to Outputs Insufficient beneficiary interest and willingness to participate.
Ineffective Regional Grant Approval Committees.
I
Slow review and approval o f proposals b y Working Group and Regional Grant Approval Committees.
Line ministries do not support project concept and implementation plan.
Counterpart finds not available on time.
PMU incompetent.
Insufficient availability o f qualified contractors and Service Providers.
Overall Risk Rating
Risk Rating - H (High Risk), S (Substantial Ri$
Risk Rating
M
S
M
N
M
M
S
S
M
M
M
N
M , M (Modest Risk), I
Risk Mitigation Measure
Ensure continued government commitment through participation in Working Group and RGACs and endorsement o f Operational Manual (OM). Inclusive information campaign.
Monitor implementation for consistency with OM guidelines.
Monitor implementation for consistency with OM guidelines.
Monitor implementation for consistency with OM guidelines.
Monitor implementation for consistency with OM guidelines.
Active public information dissemination and capacity building for MP preparation.
Assistance by ROO and PMU; active supervision in initial phase o f implementation.
Assistance by ROO and PMU; active supervision in initial phase o f implementation.
Engage line ministries in SC.
Ensure cost-sharing at MP appraisal. Phased start o f project implementation.
Capacity building that includes learning by doing and leaves time for assimilation. Close supervision, mid-term evaluation.
Wide advertisement to attract numerous qualified candidates.
:Negligible or Low Risk)
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3. Possible Controversial Aspects:
Selection of the project regions and bene$ciary communities. During project preparation different stakeholders expressed a wide range o f views on the project implementation areas. Some proposed the poorest regions and others the regions with highest agricultural potential. Again others suggested to work in regions that have not yet received adequate intemational donor support. The initially proposed four project areas were selected ranking economic zones based on indicators for rural poverty and agricultural potential. Ultimately, the Government proposed the three finally selected target regions which IDA accepted given their relatively high rural poverty rates resulting from the 2002 State Statistical Committee’s Household Budget Survey. There may also be controversy around the selection o f beneficiary communities. The Operational Manual lays out transparent and objective community eligibility and selection criteria to address this issue.
Financing credits versus grants for micro-projects. The Government i s concemed that financing grants wi l l not foster ownership and accountability and may impede development o f credit culture. Beneficiaries contribute a minimum o f 10 percent o f the cost o f micro-projects, thus giving them an important stake in outcomes. The project provides technical assistance to households in order to facilitate access to credit and the project has considerable overlap with the IDA’S Agricultural Development and Credit Project.
Municipal involvement. Some parts o f government are reluctant about involving municipalities in project implementation, given their generally low capacity and the risk that municipalities could control community preferences. Others want to strengthen local governments in line with the government’s decentralization strategy. The project addresses this by encouraging communities, municipalities, and central government to cooperate and build sustainable collaborative relationships.
Community driven approach to project implementation. Some rayon level governments do not endorse the community driven approach to project implementation because the central government i s better informed about local needs and because local communities’ capacity and degree o f organization i s too low for organizing the complex process o f identifying and implementing investments. To address this, the project emphasizes community capacity building. The project wi l l also pay close attention to the selection o f personnel for the PMU, ROOs and RGACs. Finally, AZRIP w i l l coordinate closely with local level authorities in project implementation.
G. Main Credit Conditions 1. Effectiveness Condition
1. The Project Management Unit has been established and i ts key staff, including operational specialists for community development, capacity building and management information system, have been appointed, satisfactory to the Association.
2. The Operational Manual satisfactory to the Association has been finalized and submitted to the Association.
3. The Borrower has opened the Project Account for the Project, in a bank on terms and conditions acceptable to the Association with an initial deposit in Manat equivalent to US$50,000.
4. The Working Group with broad stakeholder representation satisfactory to the Association has been established.
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2. Other [classify according to covenant types used in the Legal Agreements.]
Board Conditions 1. Core Operational Manual satisfactory to the Association.
Disbursement Conditions 1. Management Information System satisfactory to the Association operating in the Project Management
unit.
Dated Covenants 1, By December 3 1, 2004, the Borrower shall have appointed an auditor satisfactory to the Association.
H. Readiness for Implementation 0 1. a) The engineering design documents for the first year's activities are complete and ready for the start
o f project implementation. Kl 1. b) Not applicable.
0 2. The procurement documents for the first year's activities are complete and ready for the start o f
[? 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory
0 4. The following items are laclung and are discussed under loan conditions (Section G):
project implementation.
quality.
The Project Implementation Plan and the Procurement Plan are part o f the Operational Manual which will be available satisfactory to IDA by effectiveness.
I. Compliance with Bank Policies Kl 1. This project complies with all applicable Bank policies. 0 2. The following exceptions to Bank policies are recommended for approval. The project complies with
all other applicable Bank policies.
1
Alexanc Tea% Leader Sector ManagerlDirector Country ManagerlDirector
have been satisfactorily maintained within 6 to 12 months after completion (at designated intervals).
Increased participation o f project beneficiaries in investment decision making and implementation.
Hierarchy of Objectives jector-related CAS Goal:
Supervision mission reports, and evaluation (mid-term and final) reports.
Participatory monitoring and evaluation reports.
Post-project survey.
Management information System (MIS) generated data.
Ieliver key social and iconomic services critical to ioverty reduction.
'roject Development Ibjective: Improved living standards :nd increased use o f nfrastructure services for iouseholds in rural :ommunities completing nicroprojects.
Sector Indicators: Sector1 country reports: Poverty monitoring. Poverty update.
Improved access to basic services. country reports.
Economic, social, and sector
(from Goal to Bank Mission) Macro-economic stability maintained.
Public administration and capacity for implementation improved.
Political stability and reform agenda maintained.
(from Objective to Goal)
Key stakeholders in government support community development.
Govemment maintains pace o f reforms and conducive environment for decentralization.
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Comp. C. Project Management. Well managed Droject activities.
Data Collection Strategy
their nen4y acquired knowledge often or very often.
Disbursement on schedule at P M U level.
Satisfactory financial management by P M U ROOs.
Satisfactory execution o f procurement by PMU.
'reject reports:
'roject reports.
supervision mission reports.
:valuation (mid-term and inal) reports, including nid-term social assessment.
vlIS data,
'rocurement and nfrastructure quality review.
kdministrative and nanagement record keeping ;ystems and summary reports ;enerated by the project.
Critical Assumptions (from Outputs to Objective)
i
Strong support and commitment from regional and national government.
Transparent selection o f participating communities.
ROOs and Regional Grant Approval Committees follow criteria for selection o f micro-projects.
Suitable balance between central oversight and control and local evaluation o f investments.
Ownership o f local assets i s clarified.
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Key Performance Indicators
Inputs: (budget for each component) US$14.57 million US$5.10 million US$1.43 million
Objective. The Project Development Objective is for households in communities completing micro-project investments to improve living standards and increase the use o f infrastructure services. Micro-project investments in economic and social infrastructure will be identified and selected using demand driven processes. Funded micro-projects will be designed to increase access to, use and quality o f local economic and social infrastructure (e.g. markets, roads, schools, clinics). Improved access to local infrastructure will reduce household transaction costs, thereby freeing up household resources for greater market participation and ultimately improved household living standards.
The project has three components: Component A -- Infrastructure Component B -- Capacity Enhancement Component C -- Project Management.
By Component:
Project Component A - Infrastructure - US$14.57 million
The Infrastructure component provides funds for demand-dnven micro-projects ( M P s ) in rural infrastructure. The MPs would have an average investment amount o f US$35,000 (micro-projects over US$50,000 wil l require prior review by the Working Group and IDA) and be financed based on a competitive grant scheme. M P expenses eligible for financing from the project include identification, design, construction, and rehabilitation o f the infrastructure. Below are examples o f investments that may be identified by the beneficiaries. Other investments may be designed to meet the specific needs o f the community to improve infrastructure o r living conditions. The Operational Manual describes the investments in more detail and gives a negative list.
Potential investments include inter alia rehabilitation or construction o f a water supply systems 0 sewerage and drainage systems a secondary roads and small bridges
a primary schools and kindergartens 0 health centers a community centers a parks a market places.
a small scale local electricity distribution
Cost sharing. Applicants are required to share the cost o f the investment and to ensure funds for O&M after the grant funding has been completed. Micro-projects require a minimum beneficiary investment share o f 5 percent o f the micro-project investment amount in kind, and o f 5 percent o f the micro-project investment amount in cash, for a combined Beneficiary Investment Share o f at least 10 percent o f the investment cost. Labor may be included in the calculation o f in-kind cost-sharing at a rate determined in the Operational Manual.
Eligibility. The project targets rural communities (greater than 1,000 and less than 10,000 people,
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including clusters o f smaller communities) in locations that are poor and have not yet received adequate international donor support. The project focuses mainly on three economic zones: (i) the lowlands o f Shirvan, (ii) Mugan-Salyan, and (iii) Nakhchivan. A total o f about 350 - 450 micro-projects will be implemented over four years in communities meeting eligibility criteria. The three economic zones comprise 21 rayons as shown in the map in Annex 13 with approximately 676 eligible villages plus many clusters o f smaller villages that can potentially be eligible if they combine communities to add up to 1,000 people.
The recipient i s the organization in the community that executes the project. Eligible recipients are municipalities, community based organizations registered as legal entities (including NGOs) or any other associations and organizations that the Borrower and IDA agree upon. Investments will be identified by beneficiaries, prioritized through local participatory planning processes, and appraised according to technical, financial, social, economic, institutional and environmental criteria set out in the Operational Manual. A village may not implement more than one project at a time, but since numerous municipalities comprise two or three villages it i s not excluded that more than one project can be implemented in a given municipality. Eligible proposals have to be endorsed by community members with adequate representation o f community groups as detailed in the OM. The proposals have to include information on appraisal criteria such as presence o f or efforts to create community groups, participation in training programs, statement confirming the communities’ Beneficiary Investment Share (BIS), micro-project description and implementation plan, and operation and maintenance plan. Simple, transparent eligibility and appraisal criteria are described in detail in the OM.
Phased introduction to program. The first ROO will be established in Saatli in Mugan-Salyan between Board Approval and Loan Effectiveness, which wi l l serve to train the ROO-staff on-the-job and test the procedures. The Mugan-Salyan ROO wi l l initially operate in conjunction with ongoing community mobilization practices and manage three or four micro-project preparation rounds (MPP-cycle).
The ROOs in the other two regions w i l l be established after Credit Effectiveness one after the other with intervals o f 2-3 months. The staff o f the new ROOs wi l l undergo on-the-job training in the Mugan-Salyan ROO. The Mugan-Salyan ROO will remain an “in-house” training center where new staff transits prior to start their staff function.
Each ROO will select two initial rayons in which to begin the project. Additional rayons will be added according to a multi-annual investment strategy (AISP: annual investment strategy and planning) until the entire economic zone i s covered.
Each ROO wi l l go through an outreach planning process to prioritize the communities to mobilize. Outreach planning will take place in function o f logistical constraints, infrastructure needs, and communities’ willingness and ability to mobilize as assessed during a rapid community assessment. Although information will be freely available for all and spontaneous request will be considered, it i s not intended to organize a wide information campaign, which might generate expectations that can not be met with limited project resources. More equity will be achieved over the entire project l i f e time. Details on outreach planning are provided in the Operational Manual.
The SPs wi l l provide advice and assistance to communities in the eligible rayons regarding the application process, project identification, budget formulation, technical design, procurement and project management through organized community mobilization campaigns and follow-up activities described in detail in the Operational Manual.
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Micro-project preparation and implementation. The MP preparation, selection and implementation steps are described in detail in the Operational Manual. In summary, the M P cycle comprises the following seven main steps:
1) Outreach planning 2) 3) M P appraisal 4) M P approval 5) 6) M P completion and handover 7) MP evaluation.
Community mobilization and MP preparation
Signing o f Cooperation Agreement and MP implementation
Service Providers (SPs) provide assistance to communities in identification and preparation o f project proposals through community mobilization and follow-up activities. After appraisal by the ROO, the proposal i s sent to the Regional Grant Approval Committee (RGAC) for approval. The RGAC i s established with a mixture o f government and civ i l society members identified and selected from stakeholders in the economic zone o f operations o f the ROO. The OM establishes procedures on how the RGACs have to approve M P proposals. Approved MPs enter into a cooperation agreement with the PMU which will become effective once the cash Beneficiary Investment Share has been deposited in the recipient‘s account. MPs below US$lO,OOO can be implemented directly by the community and their legal entity will act as both implementing and executing agency. They will recruit workers, purchase equipment, materials and small-scale services (e.g. a plumber), and undertake procurement activities which will have been described in detailed procedures in the scope o f work o f the contract. MPs above USS10,OOO are executed by outside contractors, who will be contracted by the legal implementing entity according to the competitive procurement procedures described in the scope o f work o f the contract. The ROO procurement officer will ensure that adequate procedures are included in the contract, will train the implementing partners and will supervise the procurement aspects o f project implementation.
Procurement. Procurement by grantees will be conducted based on the September 2003 “Manual for Conducting Very Small-Value Procurement under World BankADA Small Grants, Loans and Credits.” Training o n compliance with the procurement procedures will be provided as part o f the capacity building and technical assistance for proposal preparation. Eligible expenditures include works, goods and services for micro-projects.
Reporting. The MP recipient will be required to complete regular reporting as described in the cooperation agreement. The reports serve three main purposes: (i) regular progress monitoring; (ii) performance monitoring; and (iii) payment requests based on progress and performance.
Participatory performance monitoring and evaluation (PM&E). The AZRIP monitoring and evaluation activities are facilitated and coordinated by the Monitoring and Evaluation Specialist at the central level and the M&E/MIS specialist at the regional level. The objectives o f the M&E activities are to: (i) provide AZRIP staff and stakeholders with regular information on project implementation and outputs; (ii) identify bottlenecks and impediments in the project implementation; (iii) ensure that a l l the activities under AZRIP are implemented in compliance with the Operational Manual; (iv) determine to what extent the P M U achieves its goals and objectives, and how it affects the intended beneficiaries’ social conditions and capacities; and (v) maintain acceptable performance standards for environmental and social impacts. M&E for AZRIP goes beyond a generic reporting method to an activity that involves aspects o f community development and becomes a management tool that the project implementers, planners, evaluators and stakeholders heavily depend o n to measure progress and performance as wel l as accumulate lessons learned
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and improve the decision making process. Apart from project level and local level project monitoring, AZRIP relies on participatory monitoring and evaluation that engages local communities as well as municipalities and other stakeholders in a collaborative approach. The main objective i s to improve accountability, strengthen partnerships between all stakeholders, primarily between local govemments and communities and interest groups, encourage inclusiveness, and promote empowerment at the local level while accumulating lessons learned. Participatory M&E methods to be used include community workshops, Participatory Rural Appraisal, beneficiary assessment, self-assessment/evaluation methods, and community records and indicators.
Demand driven, govemment implemented projects are new in Azerbaijan and the necessary capacity needs to be established. To ensure proper assimilation o f the operational procedures, the first four micro-projects in each ROO will be subject to IDA’S approval.
Project Component B - Capacity Enhancement - US$5.10 million
Through advisory services and training this component will help create the required capacity o f involved stakeholders, e.g. communities and recipients, to identify, implement, and operate micro-projects (Sub-component B- 1). Sub-component B- 1 also comprises a broad information dissemination campaign which targets stakeholders at large and includes rayon and central govemment authorities. The Regional Development Program wi l l support AZRIP’s information dissemination efforts. Sub-component B-2 will finance the ROO long term professional staff and short term contract staff in order to build the capacity o f ASDAPS and the govemment more generally to implement CDD-type rural investment projects, in l ine with the Government’s view o f A Z M P as a model to be extended throughout the country. The sub-component wi l l develop the capacity of the Project Management Unit (PMLT) and three Regional Operations Offices (ROOs) to appraise, supervise, monitor and evaluate the micro-projects (including participatory M&E), as well as the capacity o f Regional Grant Approval Committees’ (RGACs) to approve micro-projects. The capacity enhancement will take place through management, planning and other training, on-the-job training, consultations, lessons-learned workshops, and use o f resource materials.
Capacity building i s fundamental to the micro-project cycle which contains a series o f built-in institutional capacity building activities. Contracts will be awarded to Service Providers (SPs) (NGOs and/or firms) to provide consultant services to train communities and recipients in micro-project identification, design, implementation, monitoring, and operations and maintenance after project closure. This component will also fund an information campaign including workshops and seminars to publicize the program and evaluate lessons leamed. Outside partners w i l l be recruited as needed to assist the ROOs with appraisal, supervision and evaluation o f the micro-projects. Terms o f reference for these contracts satisfactory to IDA wi l l be included in the OM.
Sub-component B-1 - Capacitv Enhancement for Micro-moiect Implementation: advisory services and training on:
To include
e Piloting and supporting the strengthening or formation o f legal local entities to identify, implement,
Micro-project identification through and community mobilization and participatory assessment of
Operations and maintenance o f specific investments
Linkage to business development services including information on access to credit, market,
and manage qualified micro-projects
community needs e
e Implementation o f micro-projects
e Financial and organizational ski l ls e
e
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agricultural prices, and other services Environmental assessment Information sharing, disclosure, and participatory methods Use o f scorecards to improve accountability mechanisms Monitoring mechanisms Participatory M&E.
Sub-component B-2 - Cauacitv Enhancement-for Project Management: To include advisory services and training for the P M U and Regional Operations Offices (ROOs) on: Mobilization, appraisal and supervision o f Community-driven development (CDD)-type
Use o f the project Operational Manual Monitoring and evaluation: participatory M&E, beneficiary assessments and household and
Use o f M I S (Management Information System) and reporting
PMU including ROO long-term professional staff and short-term contract staff.
micro-projects
investment surveys
Lessons-Leaming workshops
Project Component C -- Project Management - US$1.43 million
Management approach. AZRIP will be the management responsibility o f the Agency for Support o f the Development o f the Agricultural Private Sector (ASDAPS). AZRIP will be managed by a Project Management Unit (PMU) located in the ASDAPS office in Baku to provide overall coordination, and three decentralized Regional Operations Offices (ROOs) in the selected project regions. Because the program i s community demand-dnven, decisions as to where, how and what investments will be made are not defined in advance. The AZRIP will be managed with an Operational Manual (OM) that will provide the P M U the authority and operational guidance needed to deliver and account for funding, provide for institutional capacity building, and supervise implementation o f selected micro-project by recipients. The ROO staf f will be guided by the procedures in the OM to work with eligible communities, to assist them in identifying and developing micro-project (MP) proposals and in seeking approval f rom the Regional Grant Approval Committees (RGACs). The ROOs will then prepare cooperation agreements with the grant recipients for implementing the MPs that have been approved by the RGACs. The recipients will implement their MPs under the supervision and with the institutional support o f the ROOs. The ROOs will monitor and report on a step-by-step basis on the process and decisions made in the micro project cycle and keep detailed records in the Management Information System (MIS). The M I S will also include an evaluation section with qualitative and participatory evaluation analysis, which will allow ROOs, the PMU, the Government, IDA and other donors to have up-to-date picture o f the progress o f the program. The P M U and the ROOs will use the M I S and the M&E results to continuously improve project management.
The specific responsibilities o f project participants at the community, regional and national levels are as follows:
Communitv level - The recipient i s the organization in the community that executes the project. Eligible recipients are municipalities, community based organizations registered as legal entities (including NGOs) or any other associations and organizations that the Borrower and IDA agree upon. The recipients' responsibilities include: preparing project proposals; contracting o f goods, works, and services; and regular disclosure o f information to the beneficiary community on the
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status o f micro-project implementation and accounts. The legal entity (recipient) i s responsible for the operations and maintenance o f the asset after micro-project completion. The recipient reports to the Regional Operations Offices o f the Project Management Unit (PMU).
Micro-project Committees (MPCs) - are committees established in rural villages, assisting the villages to identify their priorities in formulating proposals for micro-project grants, and assisting the recipients to implement the micro-project proposals. MPCs consist o f approximately five to eleven voluntary members elected by the people in rural village(s).
Renional level - Regional Operations Offices (ROOs) located in the three target economic zones are responsible for daily project management, the establishment o f regional micro-project approval committees, and the preparation o f regional annual investment strategies and budgets. They coordinate with raion authorities, civil society, private sector, municipalities, and communities. They apply the Operational Manual; promote, register, appraise and sign micro-projects; approve disbursement o f funds; prepare cooperation agreements with the grant recipients to be signed by the PMU; supervise procurement by recipients; impart training on contracts and procurement; and supervise, monitor and evaluate micro-projects. The M I S in the ROOs gathers continuously the required reporting data on the progress o f all the activities and micro-project cycles in their respective regions. The MIS transports these data automatically to the P M U in Baku and i s the base for the regional monthly and quarterly progress reports, to be consolidated into a national report by the PMU. The ROOs w i l l submit appraised proposals for authorization to a Regional Grant Approval Committees (RGACs) once per quarter. Approved M P proposals would then be submitted to the P M U for disbursement o f funds directly to the community's legal entity. The ROOs are staffed b y the PMU. The staff includes a broad sk i l l m ix enabling them to carry out appraisal, contracting, supervision and monitoring o f micro-projects. The ROOs will be disbanded after project completion.
Regional Grant Approval Committees (RGACs) - located in the three target economic zones review the processing o f all registered MP proposals and approve or decline appraised micro-projects proposals before issuing cooperation agreements with the PMU. RGACs will also deal with complaints received from various parties with regard to the MP-cycle. The RGACs would include seven members: one representative from local government (municipal council), one representative from local executive authorities (Ex-Com), one local representative each from the Ministries o f Agriculture and Economic Development, and three representatives from civil society. The Ex-Com and local government representatives will be drawn from the raions in which microprojects have been developed for approval by the RGAC. When microprojects from more than one raion are to be considered by the RGAC, local government and Ex-Com representatives from each raion will participate in the voting to approve the microprojects from that raion. Each Regional Operational Office (ROO) Director will serve as the non-voting Secretary o f the respective RGAC. Each year, one o f the civil society representatives rotates.
National level - Institutional arrangements at the national level (based in Baku) include the Project Management Unit (PMU) and the Worlung Group. Their composition, roles and responsibilities are as follows:
Proiect Management Unit - The P M U has several functions: (i) report to and act as secretariat for the Worlung Group on issues related to the Operational Manual; (ii) identify lessons learned and incorporate them in project implementation; (iii) screen ROO budget proposals, submit micro-project proposals exceeding US$50,000 to the Working Group and IDA, and prepare
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quarterly reports; (iv) coordinate regional monitoring and evaluation; (v) conduct intemal financial, management and technical audits (ensure .project operates according to procedures in Operational Manual); (vi) disburse funds to ROOs; (vii) procure services o f Service Providers; (viii) provide institutional support to the ROOs, including guidance and supervision on finance, administration and procurement, operation o f the management information system including a web-based interface providing information about the project, application o f the Operational Manual, functioning o f the regional M P approval committees, and monitoring and evaluation. P M U staffing i s described in detail in the Operational Manual. The P M U wi l l be disbanded after project completion.
Working Group - ASDAPS (Agency to Support the Development o f the Agricultural Private Sector) would establish a Working Group (WG) to review the O M at least on a quarterly basis and formulate and adopt revisions to the OM. Revisions to the O M are subject to IDA’S no objection. The Working Group will also review RGAC decisions on micro-projects over US$50,000. The WG wi l l consist o f relevant representatives from Ministry o f Economic Development (SPPRED Secretariat, Secretariat o f Regional Development Program), Ministry o f Agriculture, the Parliamentary Commission on Decentralization and Municipal Development, and Chairpersons o f RGACs (Regional Grant Approval Committees) once the latter are established.
ASDAPS Steering Committee - The ASDAPS Steering Committee will provide general oversight and organize extemal audits o f the PMU.
Credit information. The ROOs and P M U will also maintain and provide to communities information on credit programs available for agro-processing activities in Azerbaijan. These include micro-credit provided by NGOs such as ACDI-VOCA, FINCA, World Vision, and ADRA. Credit l ines are available for ago-processing through the World Bank’s Agricultural Development and Credit Program (ceiling of US$5,000 and floor o f USS900 per member, total find o f USSll.5 million) and the revolving find o f the Farm Privatization Project (no ceiling or floor and a maximum o f 70 percent o f investment costs funded, total find US$7.5 million). International Financial Corporation (IFC) credit l ines were available from March 1998 until March 2002 through two local banks. IFC plans to provide additional funding to the same banks in the amount o f about USS1.2 million for disbursement in 2004. IFC also cooperates with EBRD and others to support a micro-finance bank that targets small companies in all economic sectors that has been operational since October 2002. USAID i s expected to design and implement programs in agricultural input supply, ago-processing, and rural credit beginning in 2004.
Monitoring and evaluation (M&E). The objectives o f the M&E activities are to provide AZRIP staff and stakeholders with regular information on project implementation and outputs; identify bottlenecks and impediments in the project implementation; ensure that all the activities under AZRP are implemented in compliance with the Operational Manual; determine to what extent the P M U achieves i t s goals and objectives, and how it affects the intended beneficiaries’ social conditions and capacities; maintain acceptable performance standards for environmental and social impacts. The arrangements for monitoring and evaluation are critical given the multitude o f capacity building and micro-project activities taking place under the project. Monitoring and evaluation procedures and relevant tools established in the Operational Manual will serve as guidelines for the M&E process.
The Monitoring and Evaluation Specialist at the central level and the M&E/MIS specialist at the regional level facilitate and coordinate the AZRIP monitoring and evaluation activities. The ROO will hire local technical experts to monitor the quality o f implementation. ROO staff will also visit Mp sites at random for spot-monitoring. The P M U has developed performance indicators for each type o f irifrastructure MP. In addition, the implementing partners and end-beneficiaries will engage in regular participatory monitoring
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and evaluation activities, qualitative self-evaluations to measure and assess the project physical achievements, project impacts, and beneficiaries’ satisfaction and self-improvement, and quantitative progress self-monitoring to measure micro-project physical achievements. These evaluations would touch upon both, the capacity building and micro-project activities. Recipients and end-beneficiaries will thereby have inputs in the M&E o f the program as wel l as in its management. AZRIP will install a management system based on “lessons-leamed” f rom previous experience based o n the participatory M&E exercises in the program.
Capacity building along w i th community mobilization activities are evaluated in a number o f ways, namely: (i) the Service Providers assess the performance o f beneficiaries; (ii) the beneficiaries undertake a participatory M&E exercise o f self-evaluation and activity evaluation; (iii) project staff evaluate the performance o f the Service Providers; and (iv) the impact and beneficiary assessments to be conducted throughout the project would address the impact o f the capacity building exercises. Lessons leamed from these activities would also be part o f the overall depository o f lessons leamed from the project.
Annual financial, procurement, and technical audits will be completed for at least 20 percent o f a l l completed M p s . For at least 20 percent of al l completed MPs, ex-post surveys will be made 6 months after closure o f the M P to monitor the quality and sustainability o f infrastructure services.
Mid-term and end o f project surveys will be conducted to assess project impact and to monitor the project indicators (see logframe in Annex l), using the baseline study conducted for the Project Social Assessment as the comparator. A similar survey will be made in non-project areas to compare project areas with a control group.
AZRIP monitoring and evaluation will link to the activities o f the Poverty Monitoring Unit with the Poverty Reduction Secretariat affiliated with the Ministry o f Economic Development.
Management Information System (MIS). The Project Management Unit wil l establish M I S to efficiently and effectively monitor and report on project performance. The M I S would be set up both, at the central P M U and the regional offices. The information at the regional level would be communicated to the central office and aggregated to provide an overall view o f project progress. The M I S would track both individual micro-projects and overall project progress to include capacity building activities at a l l levels, disbursements, delays, cost overruns, and will produce reports for the beneficiaries, the Ministry o f Finance, IDA, and other stakeholders.
Total Project Cost: 18.23 Total Financing Required 18.23
I
2.87 2.87 21.10
Project Cost ent Component A: Infrastructure Component B: Capacity Enhancement Component C: Project Management Total Baseline Cost
Physical Contingencies Price Contingencies
Total US $million
12.87 4.76 1.39
19.02 1.52 0.56
21.10
Works Goods Consultant Services Training
I Identifiable taxes and duties are 0 (USSm) and the total project cost, net o f taxes. is 21, I (USSm). Therefore, the project cost sharing ratio is 7 I .09% o f total
Since micro-projects under AZRIP are demand-driven and multi-sectoral, it is not possible to undertake a full ex-ante economic analysis. Instead, a sample economic analysis for a typical micro-project was undertaken. According to the Social Assessment, 47 percent of al l households in the project area are not satisfied with the drinking water situation, and 22 percent indicated that it i s their development priority (ranking second after energy supply). For this reason, drinking water was chosen as a typical micro-project investment. The pro-forma ex-ante economic analysis was completed for a sample investment in a rural drinking water supply system (sub-artesian wel l and low-cost pipe system) for 712 households.
The cost o f this investment would be US$79,200, including US$7,200 overhead for project management and monitoring and technical assistance to the community. The investment would provide safe and low cost water supply alternatives to the beneficiary households which at present rely mainly o n surface water sources and canals. The economic analysis used data from the project Social Assessment and cost estimates provided by other community driven development projects in Azerbaijan.
The benefits o f the investment are:
without investment situation (quantified); 0 50 percent savings in private households’ economic cost per liter o f water as compared with
Net benefit associated with increased water consumption (quantified); Improvement in health conditions (not quantified); Savings in water treatment cost (chemicals, boiling; not quantified); Improved attractiveness o f village to investment (not quantified); Increase in community’s capacity for solving problems (not quantified).
0
0
0
0
0
The costs o f the investment are:
for project management and monitoring and technical assistance to the community;
contributions to operations and maintenance fund).
investment.
0 Investment cost o f the project (AZRP grant and beneficiary investment share), including overhead
Annual operations and maintenance cost o f the system (to be covered by beneficiary households’
N o negative external effects to the environment or other water users are expected to arise f rom the
0
0
Taking into account quantified benefits and al l costs, the investment is considered as economically viable. The investment’s economic rate of retum (ERR) is 15.7 percent, and using a 12 percent discount rate results in an economic net present value (ENPV) o f AZM 55.9 million. Including non-quantified benefits to the project would only increase the retum on investment.
Main Assumptions:
Ex-ante economic analysis o f sample investment in rural drinking water system: 0 Future non-incremental supply is maintained at the present supply level.
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0
0
0
0
0
Lifetime o f investment with proper O&M is 20 years. No substantial distortions on the local market for goods or services. No substantial distortions on the exchange rate market. Exchange rate used: US$1 = AZM 4,900. The (financial) price o f unskilled labor is AZM 75,000 per month. The conversion factor for unskdled labor i s 0.7 reflecting the fact that the real market price o f
The economic opportunity costs o f collecting water are 50 percent o f the cost o f unskilled labor,
Under the project, average time o f collecting water i s reduced by 75 percent as compared to the
Environmental impacts o f the project and negative effects on other water users are assumed
Cost (savings) for chemicals or boiling water for drinking and c o o h g has not been included
labor i s lower than officially reported wages used in the financial cost estimates.
considering that it i s mostly children and women who collect water.
without project situation.
negligible so that economic environmental costs are not included into the analysis.
because n o data was available.
0
0
0
Sensitivity analysis I’ Switching values o f critical items:
The economic analysis aiso investigated the impacts on the investment’s viability o f increased investment costs, decreased project benefits, and a reduced lifetime. The switching values, indicating the percentage change which would turn the economic net present value zero are 14 percent for an increase in investment cost, minus 8 percent for the reduction in economic benefits, and minus 56 percent for a reduction in lifetime o f the investment. Since the investment results react most sensitive to changes in time savings on collecting water, the project appraisal criteria for water systems need to take into account the beneficiaries’ distance from the water source. This can serve as a proxy for savings in collection time which constitute the single most important element o f project benefits.
The economic analysis also concluded that the investment i s sustainable considering that the project design foresees that the communities pay themselves (in kind or in cash) for O&M expenses o f US$2,160 per year, collected regularly so that sufficient funds are available when breakdowns occur. As the calculated annual willingness to pay for water i s about 10 times higher than the required O&M costs, it can be concluded that the investment is in principle sustainable.
Given the large number o f small micro-projects n o full economic analysis will be carried out for micro-projects, but economic criteria are part o f the micro-project appraisal process which is described in detail in the Operational Manual. Acceptable MPs are: (i) identified in a participatory manner; (ii) o f acceptable technical quality; (iii) realized at reasonable prices; (iv) financially sustainable, and (v) do not harm the environment. Ex-post evaluations o f selected micro-projects wil l evaluate the technical quality o f investments as wel l as the process o f participation, implementation, and O&M. For a selected number o f micro-projects, pro-forma economic analysis and socioeconomic surveys will be undertaken to assess improved service access.
Disbursement Accounts by Financier IDA The Government Japan Beneficiaries Total
Amount % Amount % Amount % Amount % Amount
A. Works 0.03 90.0 0.00 10.0 - 0.03 B. Goods 0.36 100.0 0.00 - 0.36 C. Technical Assistance 0.20 4.7 1.08 25.0 3.05 70.3 - 4.33 D. Training 0.05 20.0 0.05 20.0 0.16 60.0 ,- - 0.27 E. Microprojects 13.11 90.0 -0.00 -0.0 - 1.46 10.0 14.57 F. Operating Costs 1.24 80.4 0.21 13.5 0.01' 6.2 - 1.55 Total 15.00 71.1 1.35 6.4 3.30 15.6 1.46 6.9 21.10 *Note: These are social charges for the long term consultants under C and D
Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under the IBRD Loans and IDA Credits" dated M a y 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated M a y 2004 and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the Procurement Plan indicates the procurement methods or consultant selection methods, estimated costs, prior review requirements and time frame agreed between the Borrower and IDA. The Procurement Plan will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
(i) Goods and Equipment: Goods and equipment costing US$lOO,OOO and more would be procured through Intemational Competitive Bidding. Readily available off-the-shelf goods estimated to cost less than USS100,OOO each may be procured through Shopping procedures o n the basis o f three written quotations obtained from qualified suppliers. In the procurement o f IT hardware and software by Shopping, when soliciting quotations, the f i rms operating in Azerbaijan registered to the World Bank's Web site should be solicited in addition to the other qualified firms.
(ii) Civil Works: Civil works estimated to cost US$lOO,OOO and above would each be procured through Intemational Competitive Bidding. Smaller works estimated to cost less than US$lOO,OOO each may be procured through Shopping on the basis o f three written price quotations and the contract awarded to the lowest priced quotation who has the necessary experience and financial resources to complete the works successfully. Wor ld Bank's standard and sample bidding documents and evaluation reports would be used.
(iii) Consultant Services and Training: Consultant's services would include Quality and Cost Based Selections (QCBS), Fixed Budget Selection (FBS), Consultant Qualifications (CQ), Least Cost Selection (LCS), and Individual Consultants (IC). QCBS selection over US$lOO,OOO would be advertised in UN Development Business on line version and DG-market (Gateway) and in local media (one newspaper o f national circulation or the official gazette) f rom which a short l i s t o f s i x firms would be established. For contracts estimated to cost less than US$lOO,OOO, short l i s ts may be based solely on national firms unless qualified intemational firms expressed interest. The contracts for audit services would be procured fol lowing the LCS method. Contracts estimated at less than USS100,OOO would be procured following the CQ. Individual consultants would be selected in accordance with Part V o f the Consultants Guidelines. Training for the PMU staf f would be conducted in accordance with a biannual training program that the PMU would submit to IDA for i ts agreement before implementation.
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(iv) Procurement under demand-driven micro-projects
Under the infrastructure component, the project will finance community-based micro projects. The support wou ld comprise investments in construction or rehabilitation o f local social and economic infrastructure, based on priority needs identified by communities. Specific rules apply to the micro-project appraisal and approval process, and the communities are required to meet specific eligibility criteria. Procurement o f goods, works and services for sub-projects would be conducted by recipients with active participation o f representatives o f the benefiting communities. The recipient i s the organization in the community that executes the project. Eligible recipients are municipalities, community based organizations registered as legal entities (including NGOs) or any other associations and organizations that the Borrower and IDA agree upon. Procurement o f micro-projects will be based on “Community Participation Procurement (CPP)” as described in Clause 3.15 o f the Guidelines and “Manual for Conducting Very Small Value Procurement Under Wor ld Bank/IDA Small Grants, Loans and Credits” dated September 22, 2003. Specific procurement stages for this project will be outlined in the Operational Manual. Where possible, recipients will obtain three price quotations and select the contractor or supplier with the lowest cost who fulf i l ls the requirements. P M U and its Regional Operational Offices in the project regions will provide advice to the recipients as and when needed, and will also provide standard documents and contracts for use by recipients. The PMU will prior review the first 10 micro-projects from each region and carry out ex-post review o f contracts carried out by recipients, not only regarding procurement, but also technical and financial aspects.
(v) Incremental Operating Costs: The Credit would finance the incremental operations costs of the PMU. These would be incurred in accordance to an annual budget that the PMU would prepare and submit to IDA for its approval before any expenditures are incurred. Incremental operation costs are operating costs incurred by the P M U and i t s ROOs on account o f Project implementation for communications, utilities, office supplies and maintenance, fuel and vehicle operation and i ts maintenance, salaries o f support staff, excluding those who are c iv i l servants, and other reasonable and necessary activities directly related to Project implementation, management and monitoring as may be agreed upon by the Association.
B. Assessment of the agency’s capacity to implement procurement
The project will be managed by the Project Management Unit (PMU) established in the Agency for Support o f the Development of the Agricultural Private Sector (ASDAPS).
The procurement activities will be carried out by the PMU. The Agency has two experienced and wel l trained procurement specialists. One of them is assigned to work for AZRIP for 50 percent o f his time. There i s a newly hired procurement assistant who has a l imited experience and n o training o n procurement. The procurement assistant will work under the guidance o f the experienced procurement specialist.
An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project has been carried out by Procurement Specialist, Elmas Arisoy on March 29-31, 2004. The assessment reviewed the organizational structure for implementing the project and interaction between the project’s staff responsible for procurement and the other related central and local level government agencies.
The key issues and r isks concerning procurement for implementation of the project have been identified and include the following:
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- ASDAPS is a central agency established under the Cabinet o f Ministers and responsible for implementation o f agriculturaYrura1 sector projects financed by intemational financial institutions. Currently, there are two PMUs for the projects managed by the Agency, namely Agriculture Development and Credit Project financed by IDA and Mountainous Area Development Project financed by IFAD. Another new P M U i s established under ASDAPS to manage the AZRIP. Even though the ASDAPS has two experienced procurement specialists, only one o f them will allocate 50 percent o f his time to work for AZRIP-PMU and will work with a newly hired procurement assistant.
- The Public Procurement Law dated December 27, 2001 is generally in line with U N C I T R A L Model L a w and the internationally accepted public procurement regulations. However, there i s s t i l l a need for increasing the transparency and promoting the consistent application and enforcement o f the law by the procurement entities. A s the procurements under the micro-projects will be carried out at the local level, lack o f good procurement practices in the country may result non-transparent and less effective procurement under the project. Therefore, project implementation capacity the especially the procurement activities at the community level i s a serious concern.
The corrective measures which have been agreed are the following:
- The success o f the current arrangement i.e. 50 percent o f the time o f an experienced procurement specialist plus a full-time procurement assistant for the management o f the procurement activities under AZRIP shall be closely supervised by IDA during the first 6 months o f project implementation. Corrective measures such as hiring an additional full time qualified procurement specialist shall be considered in case o f delays or failures to implement the agreed Procurement Plan.
- The Agency will establish three Regional Operations Offices at the regional level and provide procurement training to the ROO staff. The procurement specialist o f AZRIP-PMU shall provide procurement training to ROO staff. First 10 micro-projects from each region shall be prior reviewed by the AZRIP-PMU to ensure that the regional offices apply the same principles from procurement review point o f view.
The overall project r isk for procurement i s "high risk"
C. Procurement Plan
The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and IDA Project Team on March 3 1 , 2004 and is available at ASDAPS office in Baku. I t wil l also be available in the project's database and in the Wor ld Bank's external website. The Procurement Plan will be updated in agreement with IDA Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
D. Frequency of Procurement Supervision
In addition to the prior review supervision to be carried out from IDA offices, the capacity assessment o f the Implementing agency has recommended every 6 months supervision missions to visit the f ield to carry out post review o f procurement actions.
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E. Details of the Procurement Arrangements Involving International Competition
1. Goods, Works and Non-Consulting Services
(a) L is t o f contract packages to be procured following ICB and direct contracting:
Selection Method
1
Ref. No.
-
Review by IDA
(Prior I Post)
2
Contract (Description)
Procurement o f vehicles
3
Estimated cost
( U S 9 150,000
Method Preference (yeslno)
Review Expected
(Prior I Post) Prior October
(b) ICB contracts estimated to cost above US$lOO,OOO per contract and all direct contracting w i l l be subject to prior review by IDA.
2. Consulting Services
(a) L i s t of consulting assignments with short-list of international f i r m s .
i 2
Description of Assignment
TA Service Providers
TA Service Providers
3
Estimated cost
( U S 9
1,375,000
1,375,000
Prior
Prior
6
Expected Proposals
Submission Date
October 2004
October 2006
(b) Consultancy services estimated to cost above US$lOO,OOO per contract and all single source selection o f consultants ( f i rms) w i l l be subject to prior review by IDA.
(c) Short l ists composed entirely o f national consultants: Short l ists o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.
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Procurement methods (Table A)
1. 2.
The procurement methods are defined in this document as Procurement Plan described under paragraph C above.
Procurement Method Prior Review Threshold Aggregate I C B > $100,000 $150,000
Shopping < $100,000 $240,000
Azerbaijan: Rural Investment Project Procurement Plan
I. General
1. Agreed Date of the Procurement Plan Original: M a y 5,2004
2. Date of General Procurement Notice: June 15,2004 (planned)
11. Goods and Works and non-consultinp services
1. Appendix 1 to the Guidelines for Procurement :
Prior Review Threshold: Procurement Decisions subject to Prior Review by Bank as stated in
2. Pre-qualification: N o t applicable
3. CDD Procurement: Project components to be carried out by community participation to be described in accordance with para 3.17 of the Procurement Guidelines: Micro-projects component shall be carried out in accordance with the procurement procedures defined in Operational Manual, prepared in accordance with the Manual for Conducting Very Small Value Procurements under Wor ld Bank/IDA/ Small Grants, Loans, Credits (Sept 22, 2003).
4. Any Other Special Procurement Arrangements: N o t applicable
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5. Procurement Items with Methods and Time Schedule
8 2 9
Contract Description of
Item/ Package with (Description) Ref.
No.
14,450,000
Offce Renovation
Vehicles
multiple
IT Equipment
Offce Equipment
Audio-visual Equipment Office Furniture
Communication Equipment Micro-projects
OTAL
3 1 4
Total I Number Estimated of
30,000
150,000
100,000
30,000
40,000
30,000
10,000 1
5
Proeure- ment
Method
Shopping
ICB
Shopping
Shopping
Shopping
Shopping
Shopping
CPP
6
Domestic Pref-
erence (yesho)
No
Yes
No
No
N O
No
No
No
7
Prior Review by Bank (Prior I Post)
Post
Prior
Prior
Post
Post
Post
Post
Post
Indicative Expected Expected Contract
Bid- Signing Opening document
Issue Date ~
Estimated Contract Duration August September 2004
2 6 4 I inn4
August September I- project
Through- out the life
10
Expected Contract
Completion
November 2004
January 2005
October 2004
October 2004
October 2004
October 2004
October 2004
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111. Selection of Consultants
1. 2. 3.
1. Appendix 1 to the Guidelines Selection and Employment o f Consultants:
Prior Review Threshold: Selection Decisions subject to Prior Review by Bank as stated in
2. estimated to cost less than US$lOO,OOO equivalent per contract, may comprise entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.
Short l i s t comprising entirely of national consultants: Short l i s t o f consultants for services,
3
3.
4.
Description of Assignment 4th Ref. No.
Any Other Special Selection Arrangements: N o t applicable.
Consultancy Assignments with Selection Methods and Time Schedule
Total Esti- mated cost (8
1
N O No.
-
Foreign Individual Consultants
1
- 2
- 3 2 10,000
4
5 7
8
9
- -
-
-
A Service Providers 1,375,000
Publicq and promotion
Consultants
80,000
Consultants
Custom Software 30,000
4
Number of Con- tracts
multiple
multiple
multiple
1
2
1
S
Selection Method
IC
IC
IC
QBS
ss FB
LCS
CQ
6 Prior
Review by Bank (Prior I
Post)
Prior
Post
Post
Prior
Prior Post
Post
Post
I
Indicative Expected RFP Issue Proposals
mission Date
Estimated Contract Duration
Throughout he life o f the
project Throughout the life o f the
project Throughout the life o f the
project September
2004
Sub-
leptember 200 July 2004
January 200s
August 2004
Expected Contract Signing
October 2004
October 2006 September
2004 March 2005
September 2004
9
Expected Contract
Completion
October 2006
October 2008 January 2006
July 2006
January 2006
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IV. ImplementinP Agencv Capacitv BuildinP Activities with Time Schedule
Expected outcome I Activity Description Procurement Training during Project Launch Workshop CDD Training for ROO staff at the regional level CDD Training to the Recipients
Training of PMU Procurement Specialist on CDD Procurement Training of PMU Procurement Assistant on Bank's procurement procedures
1. The agreed Capacity Building Activities are listed with time schedule
Estimated Estimated Comments cost ($) Duration
Two days
Two days
To be provided by PAS
To be provided by P M CDD Consultant To be provided by Service Providers
1. Summary o f the Financial Management Assessment
Overall responsibility for financial management o f the AZRIP rests with the PMU. The financial management assessment was carried out during appraisal to confirm the adequacy o f the financial management arrangements for the project, and to assure the systems can provide to IDA accurate and timely information regarding project resources and expenditures. These financial management arrangements include systems o f accounting, financial reporting, internal controls, staffing and auditing arrangements. The conclusion reached after the assessment i s that the financial management arrangements at the P M U are acceptable to IDA.
Country Issues - The Azerbaijan Country Financial Accountability Assessment diagnostic work carried out in 2002 recommended accounting and auditing regulatory and institutional reforms to increase accountability and good governance in the country. The proposed reforms are addressed in the proposed three Poverty Reduction Strategy Credits (PRSCs). In particular, enactment o f the new Accounting Law and related secondary regulation mandating use o f International Financial Reporting Standards (IFRS) for public interest entities and governmental enterprises and International Public Sector Standards (IPSA) for the public sector. The L a w wil l assure greater transparency and accountability o f public funds. In parallel, the enactment o f the new Audit L a w and establishment o f regulatory and institutional frameworks for the Chamber o f Accounts, the Country’s Supreme Audit Institution and the Chamber o f Auditors, the audit profession regulators, and standard-setters will provide greater transparency and comparability o f financial transactions.
The Country Portfolio Performance Review (CPPR) o f January 2002 identified some generic issues affecting Wor ld Bank -financed projects in the country. Except for the recommendation to establish a centrally coordinated group to oversee development and management o f multiple financial management systems at the many project implementing units implementing Wor ld Bank-supported projects in order to minimize risks and costs, a l l other CPPR recommendations have been met and addressed in the design o f the project’s financial management arrangements.
Risk Analysis - Financial management related risk that the Project might face i s counterpart funds not made available on time. Reference Section F 2 o f the PAD. Such r isk i s mitigated by ensuring cost sharing and phased out start o f project implementation. Based on the Financial Management Questionnaire available in project files and summarized below, the inherent r isk associated with factors arising f rom the country’s rules and regulations which i s based on the CFAA’s diagnostic work i s considered high for Azerbaijan. The control risk that the project’s accounting and internal control frameworks are capable o f ensuring the project funds are used efficiently and for the purposes intended, and that the use o f funds i s properly reported is considered to be moderate.
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Description Inherent Risk 1, Country Financial Management
High Proposed PRSC 1 legal and regulatory reforms as well as institutional frameworks conducive to increased accountability and efficiency will mitigate the inherent risks.
Moderate Overall borrower improvement in providing counterpart funding on timely basis.
High Weak banking sector. Policy reforms under way.
High Regulatory and institutional reforms to improve accountability and govemance addressed under PRSC 1.
High
I Overall Inherent Risk I Moderate I
Control Risk 1. Implementing Entity
2. Funds Flow
3. Staffing 4. Accounting Policies and Procedures 5. Internal Audit
6. External Audit
7. Reporting and Monitoring 8. Information Systems
Strengths and Weaknesses - The key staff o f P M U have experience in implementing World Bank-financed projects having implemented the ongoing Agriculture Development and Credit Project. A set o f appropriate accounting procedures and internal controls including authorization and segregation o f duties have been instituted and documented in the Operational Manual.
Moderate The P M U has experience in implementing World Bank-financed projects.
Moderate Availability o f counterpart funds to be confirmed at Negotiations.
Low Adequate capacity o f key P M U staff. Low Procedures in place and documented in an
existing Accounting and Procedures Manual. High Internal audit function in the country i s weak
and i s being addressed under PRSC 1. Moderate Independent auditors to be selected under
terms o f reference acceptable to IDA. Moderate Quarterly FMRs to be agreed at Negotiations. Moderate Existing systems being customized for the new
Proi ect.
Staffing and Training - The P M U i s fully operational with competent financial and accounting personnel, recruited on a competitive basis against terms o f reference cleared with IDA. Financial management and disbursements training and workshops would be provided locally or intemational based on the needs o f the project.
AZRIP's four Regional Operations Offices (ROOs) w i l l include a position o f an Accountant who would report to the P M U Finance Manager. The Regional Accountants working closely with the municipalities, LLCs and CBOs maintaining local bank accounts for the communities will have the main responsibility for the administration o f the Grant funds for the micro-projects and financial reporting to the PMU.
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Implementation Arrangements - The AZRIP-PMU w i l l have the overall responsibility for project implementation. Specifically, the PMU will: (i) act as secretariat for the ASDAPS Steering Committee on matters relating to strategy policy; (ii) consolidated project accounting and financial reporting; (iii) Credit disbursements, including administration o f the Special Account and Project Account; (iv) procurement arrangements; (v) providing institutional support to the regions, including guidance and supervision on finance, administration and procurement, operation o f the management information system for the Project; (vi) monitoring and evaluation; (vii) coordinating regional monitoring and evaluation; financial management, procurement, supervision, monitoring and evaluation.
The PMU will maintain proper books o f accounts for the project funds, allocate funds to the decentralized locations based on identified and justified implementation needs, and closely supervise and monitor this decentralized f low o f funds. Financing mechanism and reporting formats for the Project and micro-projects have been agreed with the P M U and included in the Operational Manual. The PMU will be required to prepare quarterly Financial Monitoring Reporting (FMRs) encompassing financial reports, monitoring and procurement management reports.
Flow of Funds - The IDA Credit o f US$15 million, Government counterpart funds o f US$1.35 million, and PHRD co-financing Grant o f USS3.3 mi l l ion will finance the project costs estimated at US$21.10 million. The IDA funds will finance works, goods, consultants’ services including audits, training, grants and incremental operating costs. Participating communities are required to contribute 10 percent o f the micro-project financing (5 percent in cash and 5 percent in-hnd). The cash contribution will be made after approval o f the micro-projects and signing o f the Cooperation Agreement. Approval, decision makmg process, and f low o f funds for the micro-projects are outlined in the Operational Manual and are available in project files.
Grants - Only legal entities are allowed by law to open bank accounts. The grants for micro projects w i l l be disbursed through transfer o f funds to local bank accounts opened by the municipalities, CBOs and LLCs on behalf o f the communities. A Cooperation Agreement will be signed between the PMU, the entity opening the local bank account and representative o f the respective community. After approval o f the micro-projects and signing o f the Cooperation Agreement, ini t ial grant deposit will be made to the local bank accounts. Subsequent replenishments will be made in three tranches or after 70 percent o f the prior deposit has been utilized and supported documents provided to the PMU. Required supporting documents for replenishment o f the local bank accounts will include: financial statements, copies o f receipts, physical progress reports and bank statements. Since the borrower will be empowered to manage and account for funds which are advanced from the Special Account, it would be necessary to ensure that safeguards are put in place. It i s recommended that the local bank accounts be opened in the local branches o f the Intemational Bank o f Azerbaijan or other commercial banks capable o f executing transactions promptly, issue bank statements and charge reasonable fees for their services.
Existing Accounting Structure, Systems and Controls - The P M U implementing the ongoing Agriculture Development Project has in place an adequate financial management system which i s already producing Financial Monitoring Reports (FMRs). Since the existing in-house designed system would need fin-ther customization to meet AZRIP’s accounting and financial reporting requirements, the P M U is considering replacing the existing system with a 1C Bookkeeping software package w h c h i s widely used for project accounting by other P IUsPMUs implementing IDA-financed projects in Azerbaijan.
Accounting Policies and Procedures - The existing accounting policies and procedures that are an integral part o f internal control environment will be documented in a separate section o f the Operational Manual to enable management to monitor accounting transactions at a l l levels o f project management. The scope o f
- 4 a -
the Financial Management Section in the Operational Manual encompasses project financial management structure and staffing, identification o f the accounting standards to be used by the Project, project reporting formats and procedures for cash management, asset management, procurement and disbursements, counterpart fimd management, budgeting and auditing. The Operational Manual Financial Management Section will be available before Board presentation as part o f the core Operational Manual (see Section G Main Credit Conditions).
Audit Report Project
SOE
Special Account
Proposed Accounting System and Financial Reporting. See reference above.
Due Date Within six months o f the end o f each fiscal year and also at the closing o f the project Within six months o f the end o f each fiscal year and also at the closing o f the project Within six months o f the end o f each fiscal year and also at the closing o f the project
Reporting and Monitoring - The project wi l l prepare and produce quarterly Financial Monitoring Reports (FMRs). The FMRs w i l l comprise: (i) Financial Reports; (ii) Project Progress Report; and (iii) Procurement Management Report. These reports will provide information on the progress o f the project in terms o f financial activity, key output measures and procurement for the relevant quarter. As for the Jinancial reports, they shall include a statement showing for the period and cumulatively cash receipts by sources and expenditures by main expenditure classification, beginning and ending cash balances o f the project; and supporting schedules comparing actual and planned expenditures. The reporting line items in the FMRs will follow the project’s chart o f accounts. The cumulative FMRs over the project year will be used as the project’s annual financial statements. As for the physical progress report, the project will include a narrative write up and output indicators linking financial information with physical progress and highlight issues that require attention. In procurement reports under the FMRs, such reports wi l l provide information on the procurement o f goods, works and related services, and the selection o f consultants, as well as compliance with agreed procurement methods. Th is report will compare procurement performance against the plan agreed at negotiations or subsequently updated and highlight key procurement issues such as staffing and building capacity.
2. Audit Arrangements
External Audit. The World Bank New Audit Policy wi l l be applicable to this new Project. The audit will be carried out by independent auditors in accordance with standards and terms o f reference acceptable to IDA. Acceptable auditing standards are International Auditing Standards (IAS) issued by the International Auditing and Assurance Standards Board o f the International Federation o f Accountants. The scope for the audit wi l l be determined by the Borrower in agreement with IDA, adapted to project risks, and will also include audit o f the PHRD co-financing Grant. The contract for the audit would be awarded during the first year o f project implementation and extended subject to satisfactory performance. The cost o f the audit w i l l be eligible for financing under the Credit.
The following table identifies the audit reports that wi l l be required to be submitted by the P M U together with the due date for submission.
Internal Audit. The internal audit function in the country i.e. appraisal to examine, evaluate and monitor
- 4 9 -
the adequacy and effectiveness of the accounting and intemal control systems is rather weak. A strategy to develop an internal audit fimction in the country i s being addressed under the PRSC. However, at the Project level, the PMU will include an internal auditor reporting to both the PMU Director and the ASDAPS Steering Committee directly. The intemal audit will cover approximately two to three percent o f a l l transactions/decision-making steps in a randomly selected sample covering the operations o f the P M U and the ROOs, plus the recipients. Procedures wil l be developed in the OM. The internal auditor will report on a quarterly basis for routine reporting purposes and will report immediately in cases serious deviations are observed. The internal auditor may use consultants from pre-qualified companies to assist in the internal auditing task if required. Selection o f these consultants will be described in the OM.
Financial Covenants - The PMU would maintain adequate financial management systems and furnish to IDA quarterly Financial Monitoring Reports (FMRs) on financial, monitoring and procurement management activities. The same financial management system will be used for the IDA Credit and the PHRD co-financing grant. Independent auditors under terms o f reference acceptable to IDA would audit the Project Financial Statements, the Special Account and SOEs. The audit report and accompanying audited financial statements would be submitted to IDA no later than six.months after end o f each fiscal year audted.
Impact of Procurement Arrangements - Based on diagnostic work carried out under the Country Procurement Assessment Report (CPAR) issued in 2002, the following key factors have a direct effect on the financial management arrangements:
Legal Framework and Enforcement Regime. Azerbaijan has introduced a new Public Procurement Law (PPL) that i s based extensively on the United Nations Commission for International Trade L a w (UNCITRAL) model. The PPL has set up a three-tier review system that consists o f an internal administrative review by the State Procurement Agency (SPA) and judicial review. Perception o f the courts’ ability to deal with procurement disputes i s poor, thus jeopardizing the SPA’S level o f confidence and overall transparency in the review process.
Regulatory Functions. The SPA has been vested with the procurement regulatory functions and has shown willingness to ensure compliance with the Public Procurement L a w (PPL). The SPA has competent and well-trained staff.
Institutional Capacity. The country lacks a planned training system for procurement. Staff who undertake procurement tasks often do so without sufficient o r any formal training.
Supervision Plan - Financial Management supervision would be conducted every six months to monitor progress o f project implementation. The risk-based financial management supervision would pay particular attention to: (i) flow o f funds arrangements to effectively support the project’s objectives; (ii) review of Projects FMRs and audited financial statements, including fol low up on any remedial actions recommended in the Management Letter issued by the Auditors.
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3. Disbursement Arrangements
Allocation of credit proceeds (Table C)
Table C: Allocation of Credit Proceeds
Works 0.02 Goods
Training Microproject Grants Incremental Operating Costs
0.05 11.80 1.19
Total Project Costs with Bank 15.00
Financing Percentage 90 percent
100 percent o f foreign expenditures, 100 percent o f local expenditures
(ex-factory cost) and 80 percent o f local expenditures for other items procured
locallv ~
75 percent o f local expenditures for auditing services o f individual
consultants domiciled within the territory o f the Borrower, 95 percent o f local
expenditures for services o f consulting firms within the territory o f the Borrower and 85 percent o f foreign expenditures
for services o f other individual consultants and consulting firms
100 percent 100 percent o f amounts disbursed
(a) 75 percent o f support staff salaries and 100 percent o f eligible social charges
(b) 90 percent
The Credit would be disbursed under traditional Wor ld Bank disbursement procedures (reimbursement with full documentation, disbursements o n basis o f Statements of Expenditures (SOEs), direct payments, and special commitments).
Use of statements of expenditures (SOEs):
Statements o f expenditure for expenditures under contracts for: (a) goods and works costing less than US%lOO,OOO equivalent per contract, except the f i rst two contracts procured under shopping; (b) for services o f individual consultants costing less than US$50,000 equivalent per contract; (c) for services o f consulting f i rms under contracts costing less than US$ 100,000 equivalent per contract, except a l l the contracts procured under single source selection; (d) training; (e) grants; and ( f ) incremental operating costs, al l under such terms and conditions as the Association shall specify by notice to the Borrower. The required supporting documentation would be retained by the PMU, until at least one year after the
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Association has received the audit report for the fiscal year in which the last withdrawal f rom the GranVCredit Account was made. The documentation would be made available for review by the auditors and by visiting IDA staff upon request.
Special account: To facilitate t imely project implementation, the PMU will establish, maintain and operate, a Special Account in a commercial bank acceptable to IDA. The Special Account would have an Authorized Allocation o f up to US$l,OOO,OOO representing the expected advance payments o n contracts during the peak quarter o f expenditures if made exclusively through the Special Account. At the start o f the project, the Special Account deposits would be limited to half o f the Authorized Allocation (US$500,000), and the remaining portion o f the Authorized Allocation would be disbursed upon PMU's request when the aggregate amount o f the withdrawals from the Credit Account plus the total amount o f a l l outstanding Special Commitments entered into by IDA shall be equal to or exceed the equivalent o f SDR 5.0 million. Replenishment applications would be submitted on a monthly basis, and would include reconciled bank statements as wel l as other appropriate supporting documents. The minimum application size for payment directly from the Credit Account for issuance o f Special Commitments and direct payments will initially be 20 percent o f the initial authorized allocation and will be increased to 20 percent o f the Special Account Authorized Allocation once SDR 5.0 mi l l ion is disbursed.
/First Bank mission (identification) I I Q3lQ1l2QQ2 I
1010 112004
IAppraisal mission departure I Q3/27/2QQ4 I Q3/27/2QQ4 I lNegotiations I Q4I2Ql2QQ4 I Q4IQ5l2QQ4 I
Prepared by: Project team
Preparation assistance: PHRD Grant German CTF Bank Netherlands Water Poverty Program Trust Fund FA0 Canadian CTF
Bank staff who worked on the oroiect included: . - Name
Julian Lampietti John Adams Amy Evans Rufiz Vakhid Chirag-Zade Karin Fock Junk0 Funahashi Piet Goovaerts Ida Njer i Muhoho Alexandre Marc Ahmed Mohammed Jehani Hannah Koilpi l lai &chard Lacroix Evelin Lehis Sanyu Lutalo Michael McCandless Elmas Arisoy Curtis Paskett T.V. Sampath Jean-Jacques Soulacroup Margaret Wilson
Speciality Team Leader1 Senior Social Development Economist Team Building Facilitator Institutional DevelopmentProject Management Arrangements Operations Officer Agncultural Economist Senior Counsel Institutional Development Financial Management Specialist Sector Manager Country Manager Finance Officer Agri-Business Specialist Community Driven Development Specialist Water Specialist Legal Expert (Institutional Analysis) Procurement Specialist Natural Resource Management Specialist Senior Agriculturist Urban Management Specialist Senior Energy Specialist
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Natalia Otel Jorge Hunt Jennifer Ngaine
Consultant Consultant Transactions Program Assistant
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Annex 8: Documents in the Project File* AZERBAIJAN: RURAL INVESTMENT PROJECT (AZRIP)
A. Project Implementation Plan
The Operational Manual takes the place o f the Project Implementation Plan.
B. Bank Staff Assessments
0
0
0
0
0
0
0
Aide-Memoire and TOR for Mar-April 2003 preparation mission Aide-Memoire and TOR for October 2002 preparation mission Aide-Memoire and TOR for Mar-April 2002 preparation mission Aide-Memoire and TOR for Nov-Dec 2003 preparation mission Aide-Memoire and TOR for Jan-Feb 2004 preparation mission Procurement Assessment (by Procurement Specialist, April 2004) Financial management Assessment report (by the Financial Management Specialist).
C. Other
Draft TOR o f Project Preparation Unit (May 15,2003 draft) Aide-Memoire and TOR for Mar-April 2003 preparation mission TOR for March 2003 preparation mission TOR for December 2002 preparation mission Aide-Memoire and TOR for October 2002 preparation mission ECA-CDD Grant Proposal Aide-Memoire and TOR for Mar-April 2002 preparation mission Aide-Memoire and TOR for Nov-Dec 2003 preparation mission Aide-Memoire and TOR for Jan-Feb 2004 preparation mission Eurasia Foundation Pilot Projects Report SPPRED SPSED PID Social Assessment Report Pro-forma economic analysis o f drinking water micro-project Environmental Management Plan Land Acquisition Framework.
*Including electronic files
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Annex 9: Statement of Loans and Credits AZERBAIJAN: RURAL INVESTMENT PROJECT (AZRIP)
29-Apr-2004 Difference between expected
and actual disbursements' Original Amount in US$ Millions
Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd PO70989 2003 EO SECT DEV (APL #1) 0.00 18.00 0.00 19.40 -0.25 0.00 PO08286 PO66100 PO40716 PO69293 PO70973 PO08284 PO35770 PO35813 PO58969 PO55155 PO08288
2003 IRRIG OIST SYS a MGMT IMPROVMT 2002 lBTA2 2001 HIGHWAY 2001 HEALTH REF LIL 2001 FIN SCT TA 2000 IRRlGlDRAlNAGE REHAB 1999 PILOT RECON 1999 AGRIC DEVTB CREDIT 1999 CULT HERITAGE PRSV 1998 URG ENV INVST 1995 BAKU WS
Most recent estimate (latest year available, 1996-02) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% ofpopulation age 15+) Gross primafy enrollment (% of school-age population)
Male Female
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982
GDP (US$ billions) Gross domestic investmentlGDP Exports of goods and serviceslGDP Gross domestic savings/GDP Gross national savings/GDP
.. 51.4 61.5 61.9
.. 17.7 13.6 12.8
Current account balance/GDP Interest payments1GDP Total debVGDP Total debt serviceiexports Present value of debVGDP Present value of debtlexports
-100 1 -GDI -GDP
1982-92 1992-02 (average annual growth) GDP .. 1.2 GDP Der capita .. 0.1
8.2 710 5.8
0.9 1.8
52 65 74 17 78
98 97 99
I992
0.44 -0.7 86.2
2001
9.9 8.9
Europe & Central
Asia
476 2,160 1,030
0.1 0.4
63 69 25
91 3
102 103 101
2001
5.7 20.7 41.5 24.9 20.4
-0.9 0.4
22.2 5.3
17.4 39.5
2002
10.6 9.6
Low- income
2,495 430
1,072
1.9 2.3
30 59 81
76 37 95
103 87
2002
6.1 32.8 43.8 25.3 20.2
-12.6 0.3
23.6 6.5
2002-06
Development diamond*
Life expectancy
r
GNI per capita
Access to improved water source
-Azerbayan Low-income QTOUR
Economic ratios.
Trade
I' I I ..--
Indebtedness I - Azerbaijan Low-income group I
STRUCTURE of the ECONOMY
(% of GDP) Agriculture Industry
Services
Private consumption General government consumption Imports of goods and sewices
Manufacturing
1982 1992 2001 2002 /Growth of investment and GDP (%) 1
General government consumption Gross domestic investment Imports of goods and services
.. 6.8 -9.5 5.5 - 4 0 1
.. 17.2 -44.4 61.0 -Exports +Imports
.. 5.3 -2.4 20.7 I
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Azerbaiian PRICES and GOVERNMENT FINANCE
Domestic prices (% change) Consumer prices Implicit GDP deflator
Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit
TRADE
(US$ millions) Total exports (fob)
n.a. ma. Manufactures
Total imports (cif) Food Fuel and energy Capital goods
Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)
BALANCE of PAYMENTS
(US$ millions) Exports of goods and services Imports of goods and services Resource balance
Net income Net current transfers
Current account balance
Financing items (net) Changes in net reserves
Memo: Reserves including gold (US$ millions) Conversion rate (DEC. local/US$)
EXTERNAL DEBT and RESOURCE FLOWS
(US$ millions) Total debt outstanding and disbursed
IBRD IDA
Total debt service IBRD IDA
Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Podfolio equity
World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers
1982
1982
1982
1982
1992
1992
788
1992
54.2
1992
2001
1.5 2.5
21.5 4.7 0.9
2001
2,046
205 1,465
138
262 98
268
2001
2,369 2,130
239
-367 77
-52
317 -266
725 4,656.7
2001
1,266 0
235
132 0 2
45 88 36
227 0
50 28 0
28 2
26
2002
2.7 0.7
28.0 5.4
-0.5
2002
1,969
226 2,136
732
259 98
264
2002
2,667 3,121 -454
-385 70
-768
965 -1 97
721 4,860.7
2002
1,438 0
314
187 0 2
179 -79
82 57 0
57 2
55
00 01 02
1 -GDP deflator -CPI I
I Export and import levels (US$ mill.)
2,000
1,500
1,000
500
0
O2 I 96 97 98 99 00 01
Exports Imports
I 1 Current account balance to GDP (%)
0
-10
-20
-30
/do
Composition of 2002 debt (US$ mill.)
G: 82
* I D: 120
A - IBRD B - IDA D ~ Other multilateral F - Private C - IMF
E - Bilateral
G - Short-term
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Additional Annex 11 : Summary of Directory of Operational Manual AZERBAIJAN: RURAL INVESTMENT PROJECT (AZRIP)
TOC, acronyms, l is ts o f tables, boxes, graphs, annexes
Introduction
Volume 1 - Overview
Volume 2 - Operational Procedures
1 Implementation Schedule
2 Investment Strategy and Planning
3 Micro-Project Cycle
4 Capacity Enhancement
5 Financial Procedures and Extemal and Intemal Audit
6 Procurement Procedures
7 M&E, PM&E, Reporting
8 M I S
9 Legal Environment
10 Safeguards
11 Staff Rules and Regulations
Volume 3 - Technical Specifications
Volume 4 - Public Information Documents
Volume 5 - Financial Information (not for public disclosure)
The Social Assessment (SA) was designed to support the preparation o f the Azerbaijan Rural Investment Project by providing relevant information and analysis on pertinent village level social conditions and dynamics. The Social Assessment partly covered other than the project zones, and i t i s possible that the finally selected areas differ f rom the initially proposed ones in their priority needs and poverty levels. T h i s i s not expected to pose a problem €or the project design since its community driven orientation ensures that micro-projects meet priority needs. Also, appraisal criteria include poverty and needs indicators.
One o f the central objectives o f the S A was to understand how the project can build on the existing social dynamics and practices in the villages. Th is initial step i s necessary so as to facilitate participation o f a l l social groups, promote the emergence o f capable leaders trusted by fellow villagers, and internalize transparent communication and management practices.
The most relevant SA research findings are summarized as follows:
1. There i s a negative relationship between poverty levels and infrastructure conditions. Poverty, decreased living standards and lack o f opportunities for income generation activities are the main social development issues. While poverty i s widespread (in all four project areas average monthly income i s wel l below the official poverty level), relatively better o f f areas enjoy better infrastructure conditions and access to services. This pattern holds true for basic infrastructure such as roads, energy and water supply as wel l as to social infrastructure such as schools and health care facilities. Thus, poorer communities face additional obstacles in accessing markets as their transaction costs are higher relative to richer communities due to their lower infrastructure conditions.
2. Broad participation inclusive of all social groups i s critical for micro-project success. Social arrangements in rural areas are largely determined by traditions. A s such, it i s typically middle age and elderly men who make decisions and participate in meetings where important matters are decided. The women’s role i s very traditional apart f rom the l imited female village intelligentsia (e.g. teachers and doctors). For the most part, women are not consulted nor do they participate in community meetings or decision-making. Notwithstanding traditional village practices, a very high percentage o f villagers, 67 percent o f women and 63 percent o f men, do not think that the viewpoints o f women are h l ly represented in the decision-making processes. Given that women have not been traditionally active in public, it i s essential that project facilitators include women who can establish communications and work with other women. In this regard, it is also sensible to conduct initial awareness work with women separately. Internally Displaced People (IDPs) dispersed over the project areas, as they are newcomers and lack networks in villages, are another category typically not included in the community decision-making processes. Additionally, the young, given the traditional culture, their lack o f resources and dependency on older generations, tend to be excluded from decision-making as well. Collectively, women, IDPs and young are currently not wel l represented in the decision-making processes. Other community based projects in Azerbaijan have clearly demonstrated that there are two main components crucial for success: (a) commitment to broad participation, and (b) local capacity building. Consequently, broad participation inclusive o f gender balance and inclusion o f youth and IDPs is critical for micro-project success.
3. Fulfilling the community consensus for a higher level of local participation needs to be instituted. Although almost 60 percent o f household survey respondents do not consider themselves as actively
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participating in deciding important matters, many are nonetheless willing to participate. The main reason for the lack o f participation is that people are not asked to participate. Almost 50 percent say that they have not been consulted. The positive side i s that representation in decision-making can be improved by explicitly inviting more people to participate inasmuch as approximately two thirds o f people currently not participating are willing to do so. Making information readily available and creating incentives for participation and inclusion are the means successful community based projects have used to encourage broad participation.
4. Local level capacity will have to be improved b y facilitating participatory community development, awareness and training. Education level i s relatively high and villages generally have specialists with specific training such as teachers, agriculture specialists, and accountants. However, carrying out successful community projects i s not merely a matter o f being an expert in one specialty, but is rather a matter o f devising ways to manage multitasking to include mobilizing people and local resources, acquiring planning and management skills, and taking responsibility for village affairs. These are new and challenging concepts to the population and these concepts need to be developed and practiced. The current s k i l l and experience level in communities needs to be improved for implementing and maintaining successful micro-projects as the vast majority of communities do not have the expertise in crucial areas such as project management and planning. Fo r example, 89 percent o f municipalities report that they have not received training in project management nor project planning. There i s much more familiarity with financial reporting, analysis and accounting. Nevertheless, additional training on financial matters becomes important as wel l as this i s a part o f transparent management practices.
5. Villagers prefer local elected organizations for the management of their micro-projects. Municipalities, although very new institutions, have acquired some credibility and in many villages municipalities have earned the peoples’ trust. Invariably, in these villages, people report that they are satisfied with the municipality’s performance. Th is relates closely to the people’s preferences for micro-project management at village level. Villagers prefer that an elected organization, either municipality (55 percent) and/or a community based organization specifically created for the purpose (39 percent) manage the micro-project in their village. A major lesson from other community based projects i s that involvement o f the municipality is crucial for micro-project success. One o f the main reasons for this i s sustainability o f the investment inasmuch as most o f these investments are made in local infrastructure for which the municipality is legally responsible. Thus, even if the municipality is not the implementing organization o f a micro-project, their support i s critical for project success and sustainability.
6. Electing capable local leaders i s crucial for micro-project success. There are currently very few community-based organizations in villages and there i s also a leadership vacuum as the previous era leaders have lost their importance and new ones are slow to emerge. As other community based projects exemplify, electing capable local leaders can be a challenge inasmuch as there is little experience and thus poor understanding o f the skills required for managing a community based project. While leadership failure can happen in any environment, it i s more l ikely to happen in the environment where for decades o f Soviet rule local leadership had little to do with local responsibility. Awareness building among the villagers on what leadership entails will help the villagers identify and elect leaders with a sense o f responsibility and necessary capacities.
7. The Azerbaijan Rura l Investment Project has strong community support. There is strong support to the project among the villagers and also a readiness to share some o f the investment costs. The highest rate o f willingness to contribute i s for water related improvements. For example, 77 percent o f the households are willing to contribute cash toward improving the drinking water
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system and 79 percent toward the irrigation system. The ratings are considerably higher for willingness to contribute in-kind. However, participating with their cash i s a problem for the poorest people. As part o f the micro-project preparation, communities will have to decide on how they will deal with this issue. However, it proved difficult to establish simple and sufficiently correct criteria for identifying such communities. I t i s suggested that aRer one or one and a ha l f years o f project implementation this issue will be re-assessed and addressed based on project implementation experience.
