The World Bank Paraiba Sustainable Rural Development (P147158) REPORT NO.: RES50215 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PARAIBA SUSTAINABLE RURAL DEVELOPMENT APPROVED ON OCTOBER 20, 2017 TO STATE GOVERNMENT OF PARAIBA AGRICULTURE AND FOOD LATIN AMERICA AND CARIBBEAN Regional Vice President: Carlos Felipe Jaramillo Country Director: Paloma Anos Casero Regional Director: Anna Wellenstein Practice Manager/Manager: Preeti S. Ahuja Task Team Leader(s): Johannes Georges Pius Jansen The World Bank Paraiba Sustainable Rural Development (P147158) ABBREVIATIONS AND ACRONYMS ADC Complete Water Supply Systems ADS Simplified Water Supply Systems AESA Executive Agency for Water Management Agência Executiva de Gestão das Águas da of the State of Paraiba Paraíba ANATER National Agency for Technical Assistance Agência Nacional de Assistência Técnica e and Rural Extension Extensão Rural ARIS Agro-Climatic Risk Information System Sistema Estadual de Informações sobre Riscos Agrohidroclimáticos-SEIRA ATER Technical Assistance and Rural Extension Assistência Técnica e Extensão Rural CA Community Association Associação Comunitária CAGEPA Paraiba Water and Drainage Company Companhia de Água e Esgoto da Paraíba CD Country Director (World Bank) Diretora de País (Banco Mundial) CINEP Paraiba Development Company Companhia de Desenvolvimento da Paraíba Cooperar Paraiba State Cooperar Project Projeto Cooperar do Estado da Paraíba EoI Expression of Interest Expressão de Interesse EMPAER Research, Rural Extension and Land Empresa de Pesquisa, Extensão Rural e Regularization Company Regularização Fundiária PAD Project Appraisal Document Documento de Avaliação do Projeto PDO Project Development Objective Objetivo de Desenvolvimento do Projeto PO Producer Association Associação de Produtores SEAFDS Secretariat of Family Agriculture and Secretaria da Agricultura Familiar e do Development of the Semiarid Desenvolvimento do Semiárido SEIRA State Information System on Agri- Sistema Estadual de Informações de hydroclimatic Risks Riscos Agrohidroclimáticos SEIRHMACT Secretariat of Infrastructure, Water Secretaria de Estado de Infraestrutura, Resources, Environment, and Science Recursos Hídricos, Meio Ambiente e and Technology Ciência e Tecnologia The World Bank Paraiba Sustainable Rural Development (P147158) BASIC DATA Product Information Project ID Financing Instrument P147158 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 20-Oct-2017 15-Dec-2023 Organizations Borrower Responsible Agency State Government of Paraiba Project Development Objective (PDO) Original PDO The objective of the Project is to improve access to water, reduce agro-climatic vulnerability and increase access to markets of Paraiba's rural inhabitants. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-86390 20-Oct-2017 13-Mar-2019 10-Apr-2019 15-Dec-2023 50.00 7.45 42.55 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Paraiba Sustainable Rural Development (P147158) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction 1. The Paraiba Sustainable Rural Development Project (Paraiba Rural Sustentável) seeks to improve access to water, reduce agro-climatic vulnerability and increase access to markets of Paraiba's rural inhabitants, using a demand- driven approach. The project consists of four components. Component 1 focuses on institutional strengthening of community associations, municipal councils, producer organizations, technical service providers, and government institutions responsible for the provision of drinking water and sanitation in rural communities. Component 2 involves financing of investments in improved water supply & reduced vulnerability to climate change and establishment of an Agro-Climatic Risk Information System (ARIS). Component 3 provides support to productive alliances. Component 4 is for project management, monitoring and evaluation. Target beneficiaries consist of 44,600 poor rural households in Paraiba state. 2. The Project is being implemented by Cooperar1 in close cooperation with other implementing entities2, community associations (CAs), producer associations (POs) and municipal councils. B. Project Status 1 Cooperar (formally “project Cooperar”) is a legal entity in the State of Paraiba responsible for the implementation of sustainable rural development policies and projects. See https://paraiba.pb.gov.br/especiais/projeto-cooperar. 2 Article III paragraph 3.01 of the Appendix to Loan Agreement 8639 BR defines these entities as all of the following: AESA, SEIRHMACT and CINEP. However, the Project is also carrying out activities in cooperation with other entities including ANATER, CAPEGA, SEAFDS and EMPAER. Cooperar has entered into technical cooperation agreements with each of these entities, as per paragraph D.1, Section 1 of Schedule 2 of the Loan Agreement. The World Bank Paraiba Sustainable Rural Development (P147158) 3. The Project (Loan IBRD-8639) was approved by the World Bank Board of Executive Directors on October 20, 2017 and became effective on April 10, 2019. The loan closing date is December 15, 2023. As of March 10, 2022, the undisbursed balance is US$43.90 million (87.8 percent of the loan funds). 4. Overall Implementation Progress (IP) was upgraded to Moderately Satisfactory (MS) in January 2021 in recognition of significant improvement in the speed of implementation, particularly in relation to Component 2, despite the continuing impact of the Covid-19 pandemic. As of March 10, 2022, the Project had installed a total of 1,500 domestic cisterns (cisternas, household water storage tanks) with bidding in progress for another 3,500. Works are also in progress for 33 fords (water crossings, passagems molhadas) and another 118 are ready for bidding. In addition, the Project contracted (with works already on-going) the installation of 24 simplified community water systems (ADS), and a consultancy for the preparation of executive projects for 67 complete community water systems (ADC) is on-going. Improved implementation performance is also reflected in the disbursement pattern: disbursements so far in FY22 (US$2,812,913) are nearly three times those for entire FY21 (US$1,096,548) and account for nearly half of total disbursement so far (US$5,977,311). The project may not be able to use all the available funds by the Closing Date of December 15, 2023. No extension can be assumed at this stage. The Bank will continue to carefully monitor implementation progress and disbursements patterns. 5. Progress Towards Achievement of the Development Objective (PDO) remains Moderately Unsatisfactory (MU) because the project continues to lag behind in four out of the five PDO indicators. The PDO rating will be reassessed following project restructuring. C. Background and Rationale for Restructuring The World Bank Paraiba Sustainable Rural Development (P147158) 6. In line with the agreements reached in the September 2021 Mid-Term Review mission, and reflected in the request received from the Borrower (with reference No. GG79), this Level Two Restructuring includes the following changes: (i) reallocation of loan resources between disbursement categories, reflecting expected expenditures based on recent experience (see next paragraph), (ii) changes in allocation and composition of counterpart contribution, and (iii) adjustment of the Project Results and Monitoring Framework. In addition, the restructuring includes a change in the title of Subcomponent 2b, which will no longer include subprojects, 7. The Project follows a demand-driven approach where CAs and POs are invited to respond to calls for expression of interest (EoI) for project support to subprojects. The demand from communities for water access subprojects (in particular household-level water storage tanks under Subcomponent 2a) and passagems molhadas (under Subcomponent 2b) turned out to be much higher than expected3, to the extent that the funds assigned to Component 2 will be insufficient to cover demand. In addition, the actual unit cost of some of these subprojects based on 2020 prices turned out to exceed estimations made during Project appraisal which used 2015 prices. 8. Component 3 of the Project consists of productive alliances which is a new concept in the state of Paraiba. Thus far the Project has carried out a number of market prospect studies as well as a pilot initiative consisting of the development of business plans with eight POs. The experience obtained in this pilot, in particular the complexity involved in organizing alliances, evaluation of business plans, plus the collapse of institutional demand for food items produced by smallholders as a result of the Covid-19 pandemic4, has led to the conclusion that the end-of- project goal determined at appraisal and consisting of 170 alliances is unrealistic and will be reduced to 42. A first call for EoI for productive alliances was published on 27 September 2021, resulting in a total of 55 EoIs received. II. DESCRIPTION OF PROPOSED CHANGES 9. Reallocation of loan resources between Project Components. To balance the much higher-than-expected demand for cisterns and fords and the lower-than-expected demand for Productive Alliances, an amount of US$ 9,834,252 will be reallocated from Component 3 to Component 2 (Table 1).There will be no change in the allocation of resources for Components 1 and 4 of the Project. Table 1: Changes in allocation of loan resources by Component and Subcomponent 3 The first two calls for EoI resulted in a demand for 12,043 household-level water storage tanks and 300 fords, compared to end-of- project targets of 4,200 and 135, respectively. 4 Restoration of institutional food demand as the pandemic gradually withdraws depends on federal budgetary decisions and remains uncertain. The World Bank Paraiba Sustainable Rural Development (P147158) COMPONENTS/SUBCOMPONENTS Original amount Adjustment New amount Component and Subcomponent 1 - Institutional Strengthening 2,612,447 2,612,447 1a - Carrying out a communication campaign 415,610 415,610 1b - Strengthening the institutional capacity of Community Associations and Municipal Councils 609,474 609,474 1c - Strengthening the institutional capacity of Producer Organizations 893,318 893,318 1d - Training of service providers and establishment of a service provider database 37,050 37,050 1e - Institutional strengthening of SEIRHMACT 507,547 507,547 1f - Institutional strengthening of CINEP 149,448 149,448 2 - Water Access and Agro-climatic Vulnerability Reduction 25,799,222 9,834,252 35,633,474 2a - Pre-Investment studies and investments in water supply 19,692,506 6,825,944 26,518,450 2b – Investments and subprojects in agro-climatic vulnerability reduction 5,172,792 3,008,308 8,181,100 2c - Establishment of an Agro-Climatic Risk Information System (ARIS) 933,923 933,923 3 - Productive Alliances 14,510,458 -9,834,252 4,676,206 3a - Pre-investment studies and ATER 1,449,350 1,449,350 3b - Matching grants for productive alliance subprojects 13,061,108 -9,834,252 3,226,856 4 - Project Management, Monitoring and Evaluation 6,952,873 6,952,873 4a - Project coordination and management 5,505,495 5,505,495 4b - Monitoring and evaluation 638,300 638,300 4c - Project fiduciary administration, internal controls and audits 61,889 61,889 4d - Safeguards management 48,709 48,709 4e - Independent evaluation of business plans of productive alliances 386,750 386,750 4f - Citizen’s engagement mechanism 37,375 37,375 4g - Project studies 274,355 274,355 Front-end Fee 125,000 125,000 TOTAL 50,000,000 50,000,000 10. Change in Subcomponent title. Given that (i) the Borrower’s decision to no longer make use of subprojects for activities carried out under Subcomponent 2b, and (ii) an amount of US$150,980.49 has already been disbursed towards activities under that subcomponent, the title of Subcomponent 2b will be adjusted to “Investments and subprojects in agroclimatic vulnerability reduction” (instead of “Provisions of matching grants to the CAs for carrying out the agroclimatic vulnerability reduction subprojects”). All future investments under Subcomponent 2b will be charged to Disbursement Category 1. 11. Changes in allocation of counterpart contribution. Similar to the reallocation of loan resources, there will also be a shift in the allocation of counterpart resources, involving a reduction in counterpart contributions to Component 3 in the amount of US$4,214,680 (following the reduction in scope of this Component) and a concomitant increase in counterpart contributions to Subcomponent 2. When combined with the reallocation of Bank resources, these changes would increase the Bank’s share for Component 2 from 58 percent to 61 percent, while leaving its share in Component 3 unchanged at 70 percent. Details are provided in Table 2. 12. Changes in composition of counterpart contribution. While the total counterpart contribution to the Project will remain unchanged at US$30 million, the Borrower’s total contribution to the Project will increase from US$22,881,232 to US$27,867,062, with a corresponding reduction in beneficiaries’ contributions from US$7,118,768 to US$2,132,938 (Table 2). The latter is mainly the result of a reduction in the scope of Component 3 of the Project (productive alliances). The World Bank Paraiba Sustainable Rural Development (P147158) 13. Changes in the Results Framework. The Project Appraisal Document (PAD) contains 21 indicators, of which 5 are Project Development Objective (PDO) indicators and 16 are Intermediate Results indicators. The restructuring does not modify the PDO indicators defined in the PAD. Regarding intermediate indicators for Component 3 (productive alliances), the restructuring reduces their number to 5, by eliminating two indicators that are difficult to measure (“Producer organizations that meet commercialization agreement or business plan specifications” and “Buyers who fulfill their obligations under the commercialization agreement or business plan”) and replace these by a new indicator that can be measured more easily (“Percentage of producer organizations in operation 12 months after the project’s investment”). For Component 4, the restructuring drops one indicator (“Baseline and follow up data for investments and subprojects collected systematically”) given its subjective nature. In addition, definitions of some indicators will be adjusted to improve clarity and facilitate measurement. 14. Intermediate and end-of-project targets will be adjusted for selected indicators, to reflect (i) the increased emphasis on subprojects for water supply and rural access, and (ii) implementation delays caused by the nearly 1.5 years effectiveness delay, and by mobility restrictions and other health-related measures imposed to respond to the COVID-19 pandemic. 15. Safeguards. The Project’s safeguards performance has been consistently satisfactory from the beginning of implementation. No new environmental and social safeguard policies will be triggered. There are no changes in safeguards assessment or mitigation measures. 16. Financial Management. The project’s financial management performance has also been consistently rated satisfactory. All audit reports have been received and are considered acceptable to the World Bank. There are no overdue audit reports. 17. Procurement. The current procurement performance is moderately satisfactory given continued progress in the use of STEP (Systematic Tracking of Exchanges in Procurement) and continuing efforts by the project to further streamline procurement processes. The revised procurement plan is acceptable to the World Bank. III. CHANGES IN DISBURSEMENT CATEGORIES AND REALLOCATION OF FUNDS 18. The reallocation of loan resources has two elements: (i) a redistribution of US$9,834,252 from Disbursement Category 3 to Disbursement Category 1, i.e., US$6,825,944 to accommodate the excess demand of cisterns (household-level water storage tanks) and US$3,008,308 to accommodate the excess demand and increased costs of investments in rural access (fords); and (ii) a redistribution of US$5,021,811.515 from Disbursement Category 2 to Disbursement Category 1 to accommodate the change in the Borrower’s strategy for Subcomponent 2b, whereby implementation will no longer involve subprojects. 19. In conclusion, the proposed restructuring will better align project investments to beneficiaries’ priorities and increase implementation speed. The Borrower has demonstrated strong commitment to the Project whose performance has significantly improved over the past 1.5 years. The proposed restructuring will help speeding up implementation, improve disbursement performance (reflected in revised disbursement estimates) and maximize the likelihood of attaining the PDO. 5This amount equals the entire original allocation of Disbursement Category 2 minus the already disbursed amount of US$ 150,980.49 under this Category. The World Bank Paraiba Sustainable Rural Development (P147158) The World Bank Paraiba Sustainable Rural Development (P147158) Table 2: Changes in Project Cost and Financing Project Components Project cost State of Paraiba Beneficiaries Total Counterpart IBRD % IBRD Financing Original New Original New Original New Original New Original New Original New Institutional Strengthening 4,019,148 4,019,148 1,406,701 1,406,701 0 0 1,406,701 1,406,701 2,612,447 2,612,447 65% 65% Water Access and Vulnerability Reduction 44,362,590 58,411,522 17,043,368 22,028,048 1,520,000 750,000 18,563,368 22,778,048 25,799,222 35,633,474 58% 61% Productive Alliances 20,729,226 6,680,294 620,000 621,150 5,598,768 1,382,938 6,218,768 2,004,088 14,510,458 4,676,206 70% 70% Management, Monitoring, Evaluation 10,764,036 10,764,036 3,811,163 3,811,163 0 0 3,811,163 3,811,163 6,952,873 6,952,873 65% 65% Total Project Costs 79,875,000 79,875,000 22,881,232 27,867,062 7,118,768 2,132,938 30,000,000 30,000,000 49,875,000 49,875,000 62% 62% Front end fees 125,000 125,000 125,000 125,000 100% 100% Total financing required 80,000,000 80,000,000 22,881,232 27,867,062 7,118,768 2,132,938 30,000,000 30,000,000 50,000,000 50,000,000 The World Bank Paraiba Sustainable Rural Development (P147158) IV. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) The World Bank Paraiba Sustainable Rural Development (P147158) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Institutional Strengthening 4.02 No Change Institutional Strengthening 4.02 Water Access and Agro- Water Access and Agro-Climatic 44.36 Revised Climatic Vulnerability 58.41 Vulnerability Reduction Reduction Productive Alliances 20.73 Revised Productive Alliances 6.68 Project Management, Project Management, 10.76 No Change 10.76 Monitoring and Evaluation Monitoring and Evaluation Front End Fee 0.13 No Change Front End Fee 0.13 TOTAL 80.00 80.00 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-86390-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: CW,GO,NCS,CS,TR,OP exc. cats 2,3 31,641,100.00 3,645,170.12 46,497,163.51 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: CW,GO,NCS,CS Agro-Climatic Subp 5,172,792.00 150,980.49 150,980.49 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: CW,GO,NCS,CS Prod Alliances Subp 13,061,108.00 0.00 3,226,856.00 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: PREMIUM FOR CAPS/COLLARS The World Bank Paraiba Sustainable Rural Development (P147158) 0.00 0.00 0.00 iLap Category Sequence No: FEF Current Expenditure Category: FRONT END FEE 125,000.00 125,000.00 125,000.00 Total 50,000,000.00 3,921,150.61 50,000,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2017 3,000,000.00 0.00 2018 6,999,999.96 0.00 2019 9,000,000.00 1,426,202.31 2020 11,000,000.04 766,648.04 2021 11,000,000.04 1,096,547.89 2022 6,999,999.96 22,517,500.00 2023 2,000,000.04 24,193,101.76 . The World Bank Paraiba Sustainable Rural Development (P147158) . Results framework COUNTRY: Brazil Paraiba Sustainable Rural Development Project Development Objectives(s) The objective of the Project is to improve access to water, reduce agro-climatic vulnerability and increase access to markets of Paraiba's rural inhabitants. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 Improve access to water, reduce agro-climatic vulnerability and increase access to markets. Number of people in rural areas provided with access to 38,000.00 38,000.00 38,000.00 50,000.00 65,000.00 90,000.00 improved water sources under the project (Number) Action: This indicator has been Revised Clients who have adopted an improved agr. technology 0.00 0.00 0.00 0.00 6,000.00 12,000.00 promoted by the project (CRI, Number) Action: This indicator has been Revised Clients who adopted an improved agr. technology 0.00 2,000.00 0.00 0.00 0.00 4,000.00 promoted by project ? female (Number) The World Bank Paraiba Sustainable Rural Development (P147158) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 Action: This indicator has been Revised Percentage increase in the average gross value of sales of producers organized under 0.00 0.00 0.00 0.00 20.00 20.00 productive alliances (Percentage) Action: This indicator has been Revised Agro-Climatic Risk Information No No No No Yes Yes System in operation (Yes/No) Action: This indicator has been Revised PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 Institutional Strengthening Investments and subprojects with established institutional 0.00 0.00 0.00 30.00 50.00 70.00 arrangements for operations and maintenance The World Bank Paraiba Sustainable Rural Development (P147158) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 (percentage) (Percentage) Action: This indicator has been Revised State management model for rural sanitation No No No No Yes Yes designed, tested and implemented (Yes/No) Action: This indicator has been Revised Water Access and Agro-Climatic Vulnerability Reduction Number of water access investments and vulnerability reduction 0.00 0.00 0.00 300.00 750.00 1,193.00 subprojects implemented, by type (Number) Action: This indicator has been Revised Number of families benefited by water access investments and 0.00 0.00 0.00 5,000.00 18,000.00 31,291.00 vulnerability reduction subprojects (Number) Action: This indicator has been Revised The World Bank Paraiba Sustainable Rural Development (P147158) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 Agro-Climatic Risk Information System No No No No Yes Yes designed (Yes/No) Action: This indicator has been Revised Productive Alliances Number of productive alliance subprojects 0.00 0.00 0.00 0.00 21.00 42.00 implemented, by type (Number) Action: This indicator has been Revised Number of producers benefited with 0.00 0.00 0.00 0.00 520.00 1,050.00 productive alliance subprojects (Number) Action: This indicator has been Revised Number of female producers benefited with productive 0.00 0.00 0.00 0.00 156.00 315.00 alliance subprojects (Number) Action: This indicator has been Revised Number of potential buyers/investors 0.00 0.00 0.00 10.00 35.00 60.00 identified by the state The World Bank Paraiba Sustainable Rural Development (P147158) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 business promotion agency (CINEP) (Number) Action: This indicator has been Revised Percentage of producer organizations in operation 12 months 0.00 0.00 70.00 70.00 after the project investment (Percentage) Action: This indicator has been Revised Project Management, Monitoring and Evaluation Baseline and follow up data for investments and No Yes Yes Yes Yes Yes Yes Yes subprojects collected systematically (Yes/No) Action: This indicator has been Marked for Deletion Percentage of grievances registered related to delivery of project 0.00 80.00 100.00 100.00 100.00 100.00 benefits that are addressed (Percentage) Action: This indicator has been Revised Grievances related to 0.00 0.00 10.00 20.00 30.00 40.00 50.00 60.00 delivery of project The World Bank Paraiba Sustainable Rural Development (P147158) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 benefits that are addressed-(number) (Number) Action: This indicator has been Marked for Deletion Number of direct project 160,388.00 160,388.00 160,388.00 193,000.00 250,000.00 325,400.00 beneficiaries (Number) Action: This indicator has been Revised Female beneficiaries 30.00 30.00 30.00 30.00 30.00 30.00 (Percentage) Action: This indicator has been Revised IO Table SPACE The World Bank Paraiba Sustainable Rural Development (P147158)