The World Bank IDP Living Standards and Livelihoods Project (P122943) REPORT NO.: RES37520 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF IDP LIVING STANDARDS AND LIVELIHOODS PROJECT APPROVED ON OCTOBER 27, 2011 TO REPUBLIC OF AZERBAIJAN SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Sebastian-A Molineus Regional Director: Steven N. Schonberger Practice Manager/Manager: Kevin A Tomlinson Task Team Leader: Robert Wrobel, Nijat Valiyev The World Bank IDP Living Standards and Livelihoods Project (P122943) ABBREVIATIONS AND ACRONYMS AF Additional Financing AZN Azerbaijani Manat (as of July 18, 2019, 1 AZN = 0.6 USD) CD Country Director EA Environmental Assessment GoA Government of Azerbaijan IBRD International Bank for Reconstruction and Development IDP Internally Displaced Person MoF Ministry of Finance SFDI State Fund for the Development of IDPs PDO Project Development Objective RF Results Framework USD United States Dollar VAT Value Added Tax The World Bank IDP Living Standards and Livelihoods Project (P122943) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P122943 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 27-Oct-2011 31-Dec-2020 Organizations Borrower Responsible Agency Republic of Azerbaijan Social Fund for Development of IDPs (SFDI) Project Development Objective (PDO) Original PDO The objective of the Project is to improve living conditions and increase the economic self-reliance of targeted internally displaced persons. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-86270 17-Jun-2016 23-Jun-2016 12-Sep-2016 31-Dec-2020 66.70 15.50 51.20 IBRD-80960 27-Oct-2011 16-Nov-2011 09-Feb-2012 31-Dec-2016 50.00 50.00 0 The World Bank IDP Living Standards and Livelihoods Project (P122943) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Status 1. Progress in achieving the Project Development Objective (PDO) of the IDP Living Standards and Livelihoods Project is mixed. The parent Project recorded satisfactory ratings in implementation progress and towards achieving its PDO, and disbursed 100 percent of the total IBRD loan of US$50.00 million by late 2016. Achievements under the parent Project included the following: 240,000 IDPs benefited from over 300 community subprojects, including, among others, water, drainage, irrigation, and road rehabilitation in communities in which large numbers of IDPs settled; 103 collective centers (i.e. public buildings used as residential areas for IDPs) were renovated; and 6,200 IDPs gained employmentover half of whom (3,601) were womenand 1,862 beneficiaries gained access to microcredit that was used to initiate entrepreneurship activities. The Additional Financing (AF), effective since September 2016, has so far disbursed 20 percent (US$13.50 million) of the US$66.70 million loan amount. In its first year of implementation the AF project was also on track to achieve its PDO. Between September 2016 and October 2017, it completed 51 micro-projects to improve community infrastructure and services: 49 under Component A, and two under Component B. Under Component C, the youth support sub- component provided vocational training to 833 youth and pre-selected a second batch of 833 beneficiaries. The income generation sub-component trained and delivered small grants to the first batch of 134 income generating groups with a total of 1,387 beneficiaries, 71 percent of whom are women. However, as of October 2017, Project implementation ground to a halt due to lack of counterpart co-financing (described further below), and did not restart until March 2019 when government co-financing was approved again. As a result, the overall progress towards achieving PDO lags behind original projections. 2. Project ratings are currently Moderately Unsatisfactory for both PDO achievement and implementation progress. In 2017 and 2018 the project did not receive sufficient Government co-financing: in 2017 there was a shortfall in co-financing of US$1.05 million, and in 2018, of US$4.90 million. Government co-financing is used primarily to cover VAT expenses in the purchase of goods and services, which are ineligible expenditures under the terms of the Loan Agreement. The shortfall in Government co-financing meant that no payments to vendors could be completed (although payments for SFDI staff salaries continued). The lack of counterpart financing affected all areas of project performance, including: (i) the accumulation of arrears to vendors for construction and consultancy services delivered in the amount of AZN 9.30 million (US$5.48 million equivalent); (ii) extended delays in procuring financial audits for the 2017 and 2018 calendar years; (iii) disruption of the randomized control trial impact evaluation of the project’s livelihoods component initiated with technical assistance from the Bank’s Development Impact Evaluation (DIME) group, which could no longer be conducted due to the lag in implementation and the uncertainty over whether future batches of beneficiaries would receive project assistance; and (d) limited field supervision from SFDI staff. Furthermore, no new project activities were initiated The World Bank IDP Living Standards and Livelihoods Project (P122943) after October 2017 and certain activities were curtailed mid-way through implementation. Specifically, civil works on six micro-projects under Component A, and seven micro-projects under Component B were stopped soon after they had been initiated. The delivery of tools, equipment, and technical assistance to 833 youth beneficiaries, who completed vocational training, was delayed to November 2019 as the purchase of tools and equipment and payment of consultants required payment of VAT. Small grants and assistance have not been provided as expected to the second batch of 133 income-generating groups, who were mobilized and registered as Limited Liability Corporations (LLCs) under Component C, due to the Government of Azerbaijan’s (GoA) cancellation request. SFDI retained some key project staff; however, with limited capacity to travel, their ability to monitor the project remained limited. Several key staff left SFDI after implementation stalled. 3. Project implementation restarted with a reduced scope in the spring of 2019. In February 2019 the Government approved an allocation of AZN 2.09 million (US$1.23 million equivalent), and subsequently made a new application for Loan disbursement. By July 1, 2019, all overdue payments to vendors for goods and services were settled. SFDI commissioned and submitted a combined 2017/2018 financial audit report on June 30, 2019, which the World Bank reviewed and found acceptable. SFDI issued instructions to civil works contactors to complete the 13 unfinished micro-projects by September 2019. As confirmed during the November 2019 implementation support mission, one micro-project is expected to conclude by March 31, 2020 due to implementation delays. The implementation support mission advised the GoA on the following: (i) outstanding obligations from the Borrower towards contractors and beneficiaries, and actions to be completed towards the Bank to fulfill the Borrower’s obligations under the Loan Agreement pending after the Closing Date would need to be financed entirely from the GoA’s state budget; (ii) to communicate to all prospective beneficiaries that project activities will not resume; (iii) to prepare to procure the financial audit for 2019; and (iv) begin activities related to Project closure, such as preparing the Borrower’s Implementation Completion and Results Report (ICR). B. Rationale for Restructuring 4. The GoA, in a letter dated January 4, 2019, requested the World Bank to terminate the project and respective Loan Agreement, discontinue project activities, and return the remaining loan proceeds to the Bank. The World Bank replied on January 22, 2019 requesting information from the Government needed to process the GoA’s request, including confirmation of the exact amount of undisbursed funds to be cancelled taking into account the Borrower’s obligations under the project. Between January and June 2019, the Bank and SFDI sought to clarify the scope of activities that would be completed under the Loan given its pending cancellation. During an April 2019 implementation support mission, it was agreed that SFDI would cover financial arrears to contractors and consultants, complete the 13 micro-projects that were started and stopped in 2017, and provide tools and equipment to the first batch of 833 youth support program beneficiaries. SFDI also retains the obligation to ensure that all contracts are paid and closed in accordance with World Bank procurement regulations, to procure and submit a financial audit report up to the date of the final Project expenditure, and to prepare the Borrower’s ICR. 5. The proposed restructuring responds to the GoA request of June 24, 2019 that the Bank cancel the undisbursed amount of the loan. The June 24, 2019 letter also provided the additional information requested by the World Bank needed to process the cancellation. The proposed restructuring cancels the undisbursed Loan amount of $51,195,613.70, which takes into account outstanding contractual liabilities and obligations, and brings forward the Project Closing Date to December 31, 2019. Project component costs and disbursement projections have been updated accordingly. There are no changes to the PDO, institutional arrangements, or safeguards policies. The June 24, 2019 GoA communication indicates that the financing of any works to be implemented after the Project Closing Date will be financed through the state budget. The Bank has communicated to Government the activities The World Bank IDP Living Standards and Livelihoods Project (P122943) that it must finance from internal state budget resources in order to fulfill its liabilities and obligations under the Loan Agreement. II. DESCRIPTION OF PROPOSED CHANGES 6. The key changes proposed under this restructuring are: (i) partial cancellation of the loan covering the total undisbursed loan amount equivalent to US$51,195,613.7; (ii) changes to Project components and costs to reflect the reduced loan amount; (iii) reallocations to the disbursement categories to reflect the reduced loan amount; (iv) changes to Project disbursement estimates; (v) changes to risk ratings; (vi) changes to the Project implementation schedule; (vii) advancing the Project closing date to December 31, 2019; and (viii) changes to the Results Framework to advance the end target dates for all indicators in line with the new Project closing date of December 31, 2019. 7. Cancellation Proposed. The undisbursed amount equivalent to US$51,195,613.70 will be cancelled from the Loan through this restructuring. 8. Project Components and Costs. The scope and total cost of activities under each component will be reduced to reflect the partial loan cancellation. The revised scope of each component is described below and summarized in Table 1. a. Component A: Micro-projects. A total of 362 micro-projects will be completed by project closure. This includes 307 micro-projects completed under the parent Project and 55 micro-projects under Component A of the Additional Financing loan. Any further micro-projects that have been identified and for which design works have taken place will not be implemented. The revised cost estimate for Component A is US$3.51 million. b. Component B: Housing Renovation and Social and Economic Infrastructure for IDP Settlements consists of three subcomponents: (B1) rehabilitation of IDP collective centers, (B2) infrastructure support to selected IDP New Settlements, and (B3) support for operations and maintenance of rehabilitated collective centers and infrastructure in the selected IDP New Settlements. The revised cost estimate for Component B is US$1.85 million. i. Under Component B2, nine infrastructure subprojects will be completed, while 13 infrastructure subprojects that have been identified and for which design works have taken place will not be implemented. ii. Under Component B1 and B3, no activities will be implemented. c. Component C: Livelihoods Support consists of four subcomponents: (i) Youth Support Program (YSP), (ii) Income Generating Program (IGP), (iii) Micro-Finance Program (MFP), and (iv) Integrated Economic Support Program (ISP). The revised cost estimate for Component C is US$5.90 million. i. Under the YSP subcomponent, SFDI has provided training, business development support, and in- kind tools and equipment to the first batch of 833 youth from a total of 2,500 youth planned for support under the Additional Financing loan. Due to the Loan cancellation, SFDI will not support the remaining 1,667 youth beneficiaries. ii. Under the IGP subcomponent, 134 IDP self-help groups from the first batch out of a total of 400 groups planned for support under the Additional Financing loan have been registered as LLCs, provided with business development support, and received small grants. The second batch of 133 IDP self-help groups have been registered as LLCs and provided with business development support. Due to the Loan cancellation, grants have not been provided to these 133 LLCs using loan financing. The GoA is expected to provide the grants using resources from the state budget. The World Bank IDP Living Standards and Livelihoods Project (P122943) iii. No activities will be implemented under the MFP subcomponent due to the Additional Financing Loan cancellation. iv. No activities will be implemented under the ISP subcomponent due to the Additional Financing Loan cancellation. d. Component D: Project Management, Implementation Support and Capacity Building. The revised cost estimate for Component D is US$2.67 million. TABLE 1: REVISED COMPONENT COSTS Original Component Revised Component Additional Financing Component Name Cost (US$M) Cost (US$M) Component A: Microprojects 16.50 3.511 Component B: Housing Renovation and Social and 22.53 1.85 Economic Infrastructure for IDP Settlements Component C: Livelihood Support 20.00 5.90 Component D: Project Management, 7.50 2.67 Implementation Support, and Capacity Building Front-end fee 0.25% 0.167 0.167 Expenditures WB/8096-AZ 0.478 Total: 66.7 14.57 9. Reallocation between Disbursement Categories. Disbursement category 1 is reduced to $15,337,636.3 as a result of the Loan cancellation. 10. Disbursement Estimates. No further disbursements are expected between restructuring and the Project closing date. Disbursement projections have been updated to reflect this. 11. Overall Risk Rating. The Overall Risk Rating remains Substantial. Political and Governance risks remain Substantial. Risks related to Sector Strategies and Policies remain High. Risks related to the Technical Design of the Project are raised to Substantial due to the cancellation of the rigorous impact evaluation of livelihood support activities, which negatively affects the quality of the project’s Monitoring & Evaluation system and its ability to provide evidence of PDO achievement. Risks related to Institutional Capacity for Implementation and Sustainability are raised from Substantial to High given uncertainties over Government’s intent to continue supporting activities of SFDI or specific components of the project. Fiduciary risk remains Substantial. Environmental and Social Risks were recently raised from Low to Moderate to reflect SFDI’s reduced capacity to monitor the project (e.g. no site visits have occurred since 2017). Stakeholder risk is raised from Moderate to Substantial. The long delay in project implementation and gaps in communication from the Government on the project’s status and future raise risks of unmet expectations among key stakeholders, including project beneficiaries. 1 The $3.99 million figure for Component A provided in section IV below is the sum of the Component A revised costs and the $478,000 in expenditures for micro-projects completed under the parent Project Loan (WB/8096-AZ). The World Bank IDP Living Standards and Livelihoods Project (P122943) 12. Implementation Schedule. Most, but not all, Project activities will be completed by December 31, 2019. At the time of writing, ten contracts for infrastructure subprojects under Components A and B are ongoing. Of these, two will be terminated outright as no works have begun. Another seven are expected to be completed by December 31, 2019. One micro-project, for which approximately US$39,000 remains to be paid to the contractor, is expected to be completed by March 2020. Under Component C, the services of the Project Implementing Agency for the YSP will be needed through March 2020 to oversee the distribution of tools and equipment to YSP beneficiaries and collect data needed for the Borrower’s ICR. Project management costs will be required after the December 31, 2019 closing date to finance the final financial and entity audit report, and draft and submit the Borrower’s ICR. Finally, given that the second batch of 133 income generation groups—consisting of approximately 1,500 individual IDPs—under subcomponent C2 have been formed, trained, registered as LLCs, provided with business development support, developed approved business development plans, opened bank accounts and deposited their counterpart contributions, the expectation has been created that the they will receive the small grants as planned under the project. During the November 2019 implementation support mission, the World Bank thus advised the GoA of the need to finance the costs of the above-mentioned activities incurred after the Project closing date to fulfill its outstanding obligations to contractors and beneficiaries and the Borrower’s obligations to the Bank under the Loan Agreement. 13. Project Closing Date. The project closing date is advanced by twelve months to December 31, 2019. 14. Results Framework. The end target dates for all results indicators have been advanced to the new project closing date of December 31, 2019. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Disbursements Arrangements ✔ The World Bank IDP Living Standards and Livelihoods Project (P122943) Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Micro-projects 15.00 Revised Micro-projects 3.99 Housing Renovations 33.00 Revised Housing Renovations 1.85 Livelihood Support 11.00 Revised Livelihood Support 5.90 Project Management and Project Management and 7.00 Revised 2.67 Capacity Building Capacity Building TOTAL 66.00 14.41 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications 31-Dec-2016, 29- IBRD-80960 Closed 30-Jun-2016 Sep-2017 The World Bank IDP Living Standards and Livelihoods Project (P122943) IBRD-86270 Effective 31-Dec-2020 31-Dec-2019 30-Apr-2020 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' S REQUEST IBRD- Repayi USD 49,999,388.06 0.00 28-Jun-2019 49,999,388.06 FOR 80960-001 ng COUNTRY REASONS BORROWER' S REQUEST IBRD- Disburs USD 66,700,000.00 51,195,613.70 06-Jul-2019 15,504,386.30 FOR 86270-001 ing COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-86270-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GD,CW,Non-CS,CS,AUD,GR, MiCR,TR,IOC 66,533,250.00 13,337,636.30 15,337,636.30 100.00 100 iLap Category Sequence No: 3 Current Expenditure Category: Interest Rate Cap & Collar Premium 0.00 0.00 0.00 iLap Category Sequence No: 2 Current Expenditure Category: Front-end Fee 0.00 0.00 0.00 100 Total 66,533,250.00 13,337,636.30 15,337,636.30 The World Bank IDP Living Standards and Livelihoods Project (P122943) OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2012 7.50 4,744,100.83 2013 6.00 5,483,982.59 2014 9.80 17,012,370.25 2015 16.60 8,135,706.16 2016 10.10 6,628,058.70 2017 12.00 5,490,600.27 2018 16.00 660,326.48 2019 18.00 7,186,097.61 2020 19.00 0.00 2021 1.70 0.00 OPS_DETAILEDCHANGES_SORT_TABLE SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance  Substantial Macroeconomic  Moderate Sector Strategies and Policies  High Technical Design of Project or Program  Substantial Institutional Capacity for Implementation and  High Sustainability Fiduciary  Substantial Environment and Social  Moderate Stakeholders  Substantial Other Overall  Substantial . The World Bank IDP Living Standards and Livelihoods Project (P122943) . Results framework COUNTRY: Azerbaijan IDP Living Standards and Livelihoods Project Project Development Objectives(s) The objective of the Project is to improve living conditions and increase the economic self-reliance of targeted internally displaced persons. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Improve living conditions of tareted internally displaced persons Direct project beneficiaries (Number) 240,000.00 371,000.00 Action: This indicator has been Revised Female beneficiaries (Percentage) 0.00 50.00 Percentage of households with increased access to basic rural 55.10 85.10 infrastructure (Percentage) Action: This indicator has been Revised Percentage of households who are satisfied with the quality of 24.20 54.20 basic rural infrastructure (Percentage) Action: This indicator has been Revised Changes in housing deficiencies: satisfaction with housing 0.00 75.00 condition (Percentage) Action: This indicator has been Revised Increase economic self-reliance of targeted internally displaced persons The World Bank IDP Living Standards and Livelihoods Project (P122943) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Improvement in the quailty and sustainability of IDP livelihoods 0.00 20.00 (Percentage) Action: This indicator has been Revised PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Micro-projects 1. # of completed subprojects (disaggregated by type) (Number) 307.00 490.00 Action: This indicator has been Revised 2. Number of people benefitting from access to improved 205,793.00 313,000.00 infrastructure (Number) Action: This indicator has been Revised Housing Renovations 3. # of collective centers that have been renovated by the project 103.00 103.00 (Number) Action: This indicator has been Revised Livelihood Support 5. Increase in income of direct project beneficiary households 0.00 20.00 (Percentage) Action: This indicator has been Revised The World Bank IDP Living Standards and Livelihoods Project (P122943) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target 6. Increase in income of direct project beneficiary households 0.00 20.00 (Number) Action: This indicator has been Revised 7a. # of targeted beneficiaries who gain employment (Number) 6,236.00 9,600.00 Action: This indicator has been Revised 7b. Number of targeted beneficiaries who gain employment-- 3,601.00 5,400.00 female beneficiaries (Number) Action: This indicator has been Revised 8. Increased value of assets owned by direct beneficiaries 0.00 10.00 (Number) Action: This indicator has been Revised 9. Percentage increase in profit of microloan (Percentage) 0.00 20.00 Action: This indicator has been Revised 10. No of active loan accounts -Microfinance (Number) 0.00 3,300.00 Action: This indicator has been Revised 10a. Percentage of active loan amounts held by vulnerable 0.00 50.00 IDPs (Percentage) 10b. Percentage of active loan amounts held by women 0.00 20.00 (Percentage) 10c. Percentage of project-supported institutions that are 0.00 100.00 reporting on this indicator (Percentage) Project Management and Capacity Building Grievances registered related to delivery of project benefits 0.00 100.00 addressed (%) (Percentage) The World Bank IDP Living Standards and Livelihoods Project (P122943) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Action: This indicator has been Revised Grievances related to delivery of project benefits that are 15.00 75.00 addressed-(number) (Number) IO Table SPACE Click here to enter text. The World Bank IDP Living Standards and Livelihoods Project (P122943)