Document of The World Bank FOR OFFICIAL USE ONLY Report No: 61628-MN PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 6.8 MILLION (US$11.0 MILLION EQUIVALENT) TO MONGOLIA FOR THE SECOND SUSTAINABLE LIVELIHOODS PROJECT May 10, 2011 China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific 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. CURRENCY EQUIVALENTS (Exchange Rate Effective May 1, 2011) Currency Unit = Mongolian Tugrug (MNT) MNT1270 = US$1 US$1 = SDR 0.6169 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS Aimag Province of Mongolia APL Adaptable Program Loan CI Community Initiatives CIF Community Initiatives Fund CPS Country Partnership Strategy Duureg Urban district EU European Union IBL Integrated Budget Law IBRD International Bank for Reconstruction and Development IDA International Development Association IFR Interim Financial Report IP Implementation Progress ISR Implementation Status and Results LEWS Livestock Early Warning System MDF Microfinance Development Fund MIS Management Information System MTR Mid-term Review PDO Project Development Objective PHRD Policy and Human Resources Development PM&E Participatory Monitoring and Evaluation PRM Pastoral Risk Management PRMF Pastoral Risk Management Fund SLP Sustainable Livelihoods Program SLP2 Second Sustainable Livelihoods Project SLPO Sustainable Livelihoods Program Office Soum Rural district Vice President: James W. Adams, EAPVP Country Director: Klaus Rohland, EACCF Sector Director: John Roome, EASSD Sector Manager: Ede Ijjasz-Vasquez, EASCS Task Team Leader: Andrew Goodland, EASCS MONGOLIA SECOND SUSTAINABLE LIVELIHOODS PROJECT ADDITIONAL FINANCING CONTENTS I. Introduction ......................................................................................................................1 II. Background and Rationale for Additional Financing in the amount of USD 11 million equivalent. ...............................................................................................................................1 III. Proposed Changes .........................................................................................................6 IV. Appraisal Summary .......................................................................................................8 Annex 1: Results Framework and Monitoring........................................................................ 10 Annex 2 : Operations Risk Assessment Framework ................................................................ 15 Annex 3: Status of Triggers ................................................................................................... 17 MONGOLIA SECOND SUSTAINABLE LIVELIHOODS PROJECT ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Klaus Rohland Sectors: Gen agr/fish/for sec (30%); Other Sector Manager: Ede Ijjasz-Vasquez social service (30%); Pub admin-finance Sector Director: John Roome (20%); Sub-natl govt admin (20%) Team Leader: Andrew Goodland Themes: Rural services and infrastructure Project ID: P125504 (20%); Other social protection and risk Expected Effectiveness Date: Oct 31, 2011 management (20%); Public expenditure, Lending Instrument: AF financial management and procu (20%); Additional Financing Type: Scale up Participation and civic engagement (20%); Decentralization (20%) Environmental category: B Expected Closing Date: June 30, 2013 Joint IFC: No Joint Level: n/a Basic Information - Original Project Project ID: P096439 Environmental category: B Project Name: Second Sustainable Livelihoods Expected Closing Date: June 30, 2013 Project (SLP2) Lending Instrument: APL Joint IFC: No Joint Level: n/a AF Project Financing Data [ ] Loan [ x ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: IDA Credit (20 years, grace period 10 years) AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: 11.84 Cofinancing: 0 Borrower: 0.84 Total Bank Financing: IBRD 0 IDA New 11.00 Recommitted 0 Client Information Recipient: Government of Mongolia Responsible Agency: Ministry of Finance, United Nations Street 5/3, Ulaanbaatar, Mongolia. Contact Person: Khashtsetseg Adiya, Director, Sustainable Livelihoods Program Office Telephone No.: Fax No.: Email: slp@mongol.net AF Estimated Disbursements (Bank FY/US$m) FY FY12 FY13 Annual 3.3 7.7 Cumulative 3.3 11.0 Project Development Objective and Description Original project development objective: to enhance livelihood security and sustainability by scaling up institutional mechanisms that reduce the vulnerability of communities throughout Mongolia. Revised project development objective: not revised. Project description. Project components are: 1. Pastoral Risk Management Component: to develop and carry out an integrated strategy of risk management for pastoral livestock production with an emphasis on risk preparedness. 2. Community Initiatives Component: to carry out a program to improve access to basic infrastructure and social services. 3. Micro-finance Development Component: to carry out a program to improve access to financial services and products for rural citizens. 4. Project Management: to support implementation of the program, including training, Monitoring and Evaluation (M&E), financial management and audit of project accounts. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [ X ]Yes [ ] No Natural Habitats (OP/BP 4.04) [ X ]Yes [ ] No Forests (OP/BP 4.36) [ ]Yes [ ] No Pest Management (OP 4.09) [ ]Yes [ ] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [ ] No Indigenous Peoples (OP/BP 4.10) [ X ]Yes [ ] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [ ] No Safety of Dams (OP/BP 4.37) [ ]Yes [ ] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [ ] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [ ] No Does the project require any waivers of Bank policies? [ ]Yes [ X ] No Have these been endorsed or approved by Bank management? [ ]Yes [ ] No Conditions and Legal Covenants: Financing Agreement Description of Date Due Reference Condition/Covenant The covenants set out in the Original Financing Agreement between the Recipient and IDA for SLP2 (dated 12/19/2007) will apply to the Additional Financing with the necessary minor updates (mainly performance indicators and closing date). No new conditions or legal covenants were introduced to the Additional Financing. I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional credit in an amount of SDR6.8 million, equivalent to approximately USD11 million to Mongolia Second Sustainable Livelihoods Project (SLP2; P096439; Grant Number H313 - MOG, Credit Number 4330-MOG). 2. Summary. The proposed additional credit would help finance the costs associated with scaling up the project activities to increase the impact of the project. The performance of the parent project has consistently been rated as satisfactory, and has contributed to the emergence of a new policy agenda for decentralization and increased levels of community participation in budget allocation and implementation. Following the completion of the Additional Financing period there is an opportunity for continued IDA engagement in institutionalizing approaches to enhance livelihood security and reduce vulnerability in Mongolia. No major changes to the project design are proposed, and the majority of the funds would finance the Community Initiatives Fund and the Pastoral Risk Management Fund, both of which finance priority investments identified and implemented by local communities. The project closing date would be extended by 12 months, with a new closing date of June 30, 2013. 3. Partnership arrangements. The parent project is co-financed with a EUR10 million Grant from the European Union (now fully disbursed) and a Japanese PHRD Grant of USD3.9 million. II. Background and Rationale for Additional Financing in the amount of USD 11 million equivalent. 4. Project Description. The Second Sustainable Livelihoods Project (SLP2), the second phase of the Sustainable Livelihoods Program, was approved by the World Bank Board on May 29, 2007. The total financing amount from IDA was SDR21,634,000 (of which SDR12,978,000 Credit and SDR8,656,000 Grant), the equivalent of approximately USD33 million. 5. The Sustainable Livelihoods Program was envisaged as a three-phase Adaptable Program Loan (APL), and approved by the Government of Mongolia and the Board of the World Bank with this understanding. The objectives, basic features and duration of each phase of the APL for the SLP were set at the start of the program, and have not been revised: Table 1: Overview of SLP three-phase APL (2002-2016) Phase Objective Basic feature An effective approach to promoting improved, secure Identify and pilot and sustainable livelihood strategies developed, SLP1 processes and demonstrated, and validated in selected areas, and 2002 - 2007 institutional institutional capacity created so that these strategies can mechanisms be replicated and scaled-up in phase II of the program. SLP2 To enhance livelihood security and sustainability by Scale-up institutional 2007 - 2012 scaling up institutional mechanisms that reduce the mechanisms at 1 vulnerability of rural communities throughout national, aimag and Mongolia. soum 1 levels. Fine-tune technical To fully institutionalize appropriate mechanisms utilized SLP3 and institutional in phase I and II to reduce the vulnerability of rural 2012 - 2016 innovations for long- communities throughout Mongolia. term sustainability 6. In summary, the first phase of the program was to pilot new approaches to support sustainable livelihoods, the second phase (which is on-going) is scaling up these approaches nationwide, while the third phase would fully institutionalize the approaches and embed them in Mongolian institutional agenda and policy framework. The first phase (SLP1), under which new approaches to promoting improved livelihoods were tested and validated, closed on December 31, 2007. The Overall Outcome Rating in the ICR was Satisfactory. Triggers for moving from the first to the second phase were achieved or were waived (see Annex 3). The second phase became effective on April 17, 2008, and the Mid Term Review was held in June 2010. The closing date is scheduled for June 30, 2012 7. Program/project components. SLP2 is structured around three core components: (i) Pastoral Risk Management; (ii) Community Initiatives and (iii) Microfinance Development. In addition there is a fourth component for project management. 8. Component 1: Pastoral Risk Management (PRM). The component objective is to continue strengthening the capacity of rural families, especially livestock herder households, to manage environmental, financial, social and other forms of risk that can adversely affect their livelihoods. Sub–components are: a) Risk forecasting, preparedness and response planning: To develop and institutionalize a livestock early warning system (LEWS) that delivers accurate weather and forage predictions throughout Mongolia, and to strengthen local capacity to prepare and plan for actions to be taken in response to these risk forecasts. b) Pasture-land tenure, management and use: To support and institutionalize the preparation, financing and implementation of annual pasture-land management plans at soum level. Financing of plans is from the Pastoral Risk Management Fund. c) Demonstrating good practice in pastoral livelihood improvement: To demonstrate good practice and innovation in pasture management and pastoral livelihood improvement in selected demonstration soums. d) Institutionalizing Pastoral Risk Management: To support the nationwide development of a multi-level institutional framework for Pastoral Risk Management. 9. Component 2: Community Initiatives (CI). The component objective is to establish effective, transparent and socially inclusive mechanisms that empower citizens to identify and implement small public facility improvement projects nationwide. The community members are key participants in the identification of priorities and the formulation and implementation of demand driven projects; and play an important role in supervision, monitoring and final 1 Aimag refers to provinces. There are 21 aimags in Mongolia. Aimags are split into districts known as soums. There are approximately 330 soums in Mongolia. The average population of rural soums is 3000. Urban districts are known as duuregs 2 evaluation of the project impact. The appraisal and approval of project s is decentralized and undertaken at the local level. Communities and local government co-finance all sub-projects. In brief the overall CI component and sub-component objectives are: a) Community Initiatives Fund (CIF): To provide funding for the identification, preparation and implementation of community investments. b) Community Empowerment and Capacity building: To provide funding for capacity building and empowerment of communities under the CIF. c) Innovation for Improved Social Services: To provide funding to academic institutions and NGOs to research ways to improve the delivery of social services to vulnerable groups. 10. Component 3: Microfinance Development (MD). The component objective is to expand the outreach of financially and institutionally sustainable micro-finance services to the poor and vulnerable in rural Mongolia. The primary activities of the MD component are: a) Wholesale Lending through retail financial institutions for microfinance, rural finance via the Microfinance Development Fund. b) Supporting, through soft loans and competitive grant assistance, financial sector innovations in product development, information technologies and private sector/NGO linkages in favour of the poor, rural households; c) Engaging in and supporting the further strengthening of the enabling environment for rural and microfinance through participation in policy dialogue and for and through the provision of grant assistance for the enhancement of the regulatory/supervisory procedures of microfinance; d) Design, launching and cost-sharing with the financial sector, national campaigns of consumer financial education; and e) The provision of capacity building services such as training and the launch of distance learning activities in microfinance for the financial sector. 11. Component 4: Project Management. The component objective is to provide technical assistance to support development of the program, including project implementation, staff training, information dissemination, monitoring and evaluation (M&E), financial management and audit of project accounts. 12. Design changes. During the course of project implementation, there have not been any significant changes to the project design or to its components, therefore, no amendments to the legal agreements have been necessary. 13. Implementation Progress. Overall SLP2 implementation is satisfactory. The progress towards achieving the PDO and the Overall Implementation Progress (IP) are both rated Satisfactory in the latest ISR (February 2011). Since the start of the project, the progress to PDO achievement has constantly been rated as Satisfactory. In one ISR (June 2009), the IP was downgraded to Marginally Satisfactory due to delays in the procurement of consultant services, as well as to a market slowdown in disbursement under the Microfinance Development component, which was related to a general drying up of credit following the global financial crisis. Subsequently, the IP rating was upgraded to Satisfactory in the January 2010 ISR. 3 14. Disbursement. The current disbursement rate for all sources of financing stands at 72 percent. The expenditure categories with most funding attached (for the CI Fund, PRM Fund and MDF) are on course to be fully expended by December 2011. The remaining of the project funding will be fully disbursed by the current scheduled project closing date of June 30, 2012. Financing source Original allocation Current disbursement Percentage disbursed (US$ m equivalent) (US$ m equivalent) IDA Loan 43300 19.8 10.7 54 IDA Grant H3130 13.2 9.4 71 EU Grant TF92715 13.9 13.9 100 PHRD Grant TF90580 3.9 2.6 67 Total 50.8 36.6 72 15. Indicators. A summary of progress on project outcome indicators is provided below. All of the key performance indicator targets are being met. In addition, the triggers established for moving from SLP2 to SLP3 have either been met or are on course to be met. While it is expected that most triggers would be achieved during the existing project period, the added year for additional financing would provide further time to achieve triggers for moving to SLP3. This is particularly with respect to the policy related trigger (see paragraph 23 below). Project outcome indicators progress report taken from Mid-term Impact Assessment (reports dated March 2011) Project development Baseline MTR Current End of indicators (2008) target Level project target Percentage of beneficiaries 14.8 30 69% of herders in soums with SLP 80 taking actions to mitigate involved in pastureland planning, PRM risks. Percentage of herders who 24.4 30 66% of herders in soums with SLP 80 perceived pastoral involvement see effective change improvemen.t in „rehabilitation of the degraded pasture‟. Percentage of citizens 50.9 50 Satisfaction with mechanism: 77% 60 satisfied with CI mechanism Satisfaction with outcome: 75% and outcomes. Increased number of loan 29133 15% 32.2. % higher 25% beneficiaries at soum level higher higher 16. Beneficiaries. According to the Management Information System (MIS), in 2010, a total of 1,139,592 people and 505,745 households benefitted from the project of which: 574,849 were women; 137,547 were below the poverty line; and 181,510 were herders. Benefits to minority ethnic groups are substantial. In Bayan Olgii aimag, which has a predominantly Kazak population, 35,205 beneficiaries out of a total of 39,678 beneficiaries are Kazak. Tsaatan beneficiaries in Kovsgol were 241. In any given year, SLP2 directly and indirectly benefits around 40% of the total population of Mongolia. A recent Gender Audit revealed that females 4 represent 25% of the members of aimag-level SLP councils, 39% of the members of soum SLP councils in the aimags and 52% of members of duureg SLP council in Ulaanbaatar city. 17. Progress towards SLP3: Institutionalization. The third phase of the Program is intended to support the full institutionalization of the program‟s objectives, developing not only the institutional and policy frameworks, but also the implementation capacity. Key achievements have already been made on the path to mainstream the approaches developed and rolled out under the first two phases. The status of institutionalization under each component is summarized below: 18. Pastoral Risk Management. In some respects the PRM component approaches are more institutionalized than other components, as the core planning process is already government policy, and activities are agreed in local agricultural officers‟ annual work plans. However, it is clear that there are more fundamental policy issues that need to be addressed to improve pasture management and risk mitigation. The current draft Pastureland Law would provide important impetus to tenure security over pastureland, and would enable the introduction of pasture fees. However, it is clear that policy challenges remain, not least to implement the new policies, and there would still be an important role for SLP3 to support policy development, capacity building and investment. 19. Community Initiatives. The draft Integrated Budget Law (IBL) will go before Parliament during 2011. This includes many of the approaches that have been piloted, demonstrated and scaled up under the Program. There is an opportunity to use the remainder of SLP2 to further demonstrate the approaches and refine the approaches. The possibility also remains to align SLP3 with this emerging decentralization policy, to channel project funds directly to support local budgets and/or to provide capacity building which will be required at all levels to implement the policy. 20. Microfinance Development. The MDF is already financially self-sufficient and well capitalized. There is therefore little rationale for re-capitalizing the fund further. The critical issue is the legal status and governance structure for the fund, which is currently being discussed within the Ministry of Finance, Financial Regulatory Commission and Bank of Mongolia. If this can be completed, there could be scope to provide technical assistance to the MDF, in its new form. 21. Additional Financing Rationale. On December 21, 2010, the Minister of Finance requested Additional Financing in the amount of USD11 million for SLP2. This would provide one additional year for financing SLP2, principally for the Community Initiatives Fund and Pastoral Risk Management Fund. The amount requested is the approximate annual disbursement under the project, and the task team expects the funds to be fully disbursed during a 12 month extension period. 22. Choice of instrument. Additional Financing would be used for scaling up the current activities, to increase the number of beneficiaries under the project. On-going Adaptable Program Loans do not normally qualify for Additional Financing, as financing of scaled up 5 activities would be expected to be financed in follow on phases. However, for SLP2, there is a rationale for proceeding with Additional Financing rather than moving straight into SLP3. 23. Upcoming Country Partnership Strategy. Consultations on the new Country Partnership Strategy (CPS), due to be submitted to the Board in 2011, are soon to begin, which will provide the platform for discussion the future direction of Bank support to Mongolia and priorities for IDA (and possibly IBRD) funds. This would also be an opportunity to develop broad, cross-party, consensus for the Bank‟s strategy in Mongolia, including for rural development, which is expected to continue to be a pillar of the CPS. While Government remains committed to the program and to SLP3, there is a preference to delay discussion of SLP3 (and also delay a specific request for IDA support for SLP3) until the CPS preparation is finished. 24. Evolving policy framework. The policy framework for institutionalization of the program approaches and innovations has advanced significantly during the course of SLP2 implementation, as summarized above. However, in some areas, most notably the Integrated Budget Law, which would essentially adopt the CIF principles into law, the legislation is still being discussed. Ideally, the legal framework would need to be established before SLP3 begins implementation. The Additional Financing would provide additional time for the policy framework to be established, and also would be used to further demonstrate the implementation of the reformed approaches and to gain broader support for the reform process. 25. Timing for the preparation and start-up for SLP3. The above points suggest that extending SLP2 for one additional year and hence delaying SLP3 would be the best way to proceed. Without Additional Financing there would likely be a gap between the second and third phases. There is a risk that if such a gap would occur, there would be a serio us loss of momentum that would be difficult to recover, not least for maintaining the implementation agency. 26. Rationale. Given the context explained above, Additional Financing is therefore considered to be the most suitable mechanism to increase development impact, and would be expected to facilitate the progress to the third phase of the APL. As noted above, the Ministry of Finance has submitted a request for Additional Financing and is supportive and committed to the quick preparation of the project. As the Additional Financing activities are scaling up current activities (see below), there are no concerns about implementation capacity. Implementation arrangements would remain the same as for the parent project, with the Sustainable Livelihoods Program Office being the lead implementation agency, under the guidance of the Project Steering Committee, chaired by the State Secretary of the Ministry of Finance. III. Proposed Changes 27. Project Development Objective. The PDO would remain unchanged, that is: to enhance livelihood security and sustainability by scaling up institutional mechanisms that reduce the vulnerability of communities throughout Mongolia. 6 28. Indicators. The indicators themselves would remain unchanged, though the end of project target values have been revised to reflect the additional year of activities (see Annex 1). For the Component 2 Intermediate Outcome Indicator “Percentage of bagh citizens participating in the bagh meetings” the baseline has been reset and the target reduced. During project supervision it was found that the baseline for this indicator was incorrect: it was assumed that the baseline was the minimum required participation rate (25%). However, this was assumption was incorrect and actual attendance levels recorded by the pro ject monitoring system are much lower. This has been corrected in the Results Framework (Annex 1). Other targets have also been adjusted, as appropriate. Monitoring and Evaluation has been rated as Marginally Satisfactory during recent ISRs. One reason was the delay in the mid-term impact assessments, which were completed and submitted to the World Bank in March 2011, which confirm the positive impacts of the project on beneficiaries across the country. 29. Components and Activities. The additional funds would be allocated to the Community Initiatives Component, Pastoral Risk Management Component, and for Project Management. No additional funds would be allocated to the Microfinance Development Component. The MDF has received further capital under SLP2, and is now considered to be adequately capitalized. Retained revenue from its operations should be sufficient to finance other supporting activities, including capacity building, consumer education and product innovation. 30. Community Initiatives Component. Additional funds would be added to the Community Initiatives Fund to enable it to operate for one additional year nationwide, including funds to support further community empowerment, capacity building and information dissemination. No major change in the operation of the Fund is expected. As per the Project Implementation Manual, allocation of funds would follow a detailed process of community participation, screening of proposals and a transparent process to ensure that the proposed sub - projects would meet community priorities. However, in light of the expected approval of the Integrated Budget Law, which would establish government policy for fiscal transfers and local expenditure prioritization, the CIF processes would be modified as required to be consistent with the new policy, though the principles would remain the same and the similar types of sub- projects would be financed. This would provide for a transition to the new policy. Note that the draft IBL sections on local participation are based on and consistent with the CIF procedures. In addition, the project will enhance the performance based aspects of the CIF allocation by piloting a performance-based grant to top up the CIF allocation for those communities which score highest for specified performance criteria. These criteria are currently under discussion but would include indicators which are currently monitored under the project, including community meeting participation rates, satisfaction rates with project processes and outcomes, and full and appropriate utilization of CIF funds. 31. Pastoral Risk Management Component. Funds would primarily be used for two activities: i) to provide one additional year of financing for the Pastoral Risk Management Fund; and, ii) to provide one additional year of financing for demonstrating good practice in pastoral livelihood improvement. The PRM Fund would continue to be tied to a participatory and inclusive pasture management and risk management planning process conducted at the soum level by local herders and government, and further support would be provided for the 7 preparation of pasture management plans and strengthening local capacity for risk management, as per the original project. Sub-projects identified during the planning process would be eligible for funding under the PRM Fund. This would benefit more herders and herder groups. The types of sub-project to be financed from the PRM Fund are expected to be similar to those under the parent project. Support to demonstration soums will continue to finance pilot technology and policy innovations, including testing the concept of pasture user fees as a means for improved pasture management. Continued support would be provided to strengthen the institutional framework for pastoral risk management. 32. Project Management Component. Funds would be used to support the consultancy and operating costs of the Sustainable Livelihoods Program Office. 33. Additional Financing funds allocation. Specifically, funds would be allocated as follows: Proposed allocation of Additional Financing (USD equivalent) Amount of original Proposed IDA finance Additional Category Total (Credit 43300; Financing (IDA Grant H3130) Credit) (1) Goods 1,711,000 100,000 1,811,000 (2) Goods, works and services under the PRM 9,132,000 3,400,000 12,532,000 Fund (3) Goods, works and 4,735,000 5,000,000 9,735,000 services under the CIF (4) Goods, works and services for CIF 101,000 - 101,000 Innovation sub-projects (5) Sub-loans from MDF 8,000,000 - 8,000,000 (6) Consultant services (a) under Part A, B and C 707,000 200,000 907,000 (b) under Part D 2,536,000 1,500,000 4,036,000 (7) Training, including 2,141,000 400,000 2,541,000 capacity building (8) Incremental operating 2,230,000 400,000 2,630,000 costs Total 33,000,000 11,000,000 44,000,000 . 34. Closing date. The project would be extended by 12 months, the new closing date of both the original IDA financing and Additional Financing would be June 30, 2013. IV. Appraisal Summary 35. Economic and financial analysis. The activities would be unchanged, but scaled up and the Additional Financing would build upon the expected economic impacts of the parent project, most notably: (i) improved preparation for response to pastoral risk, resulting in greater 8 resilience of livestock systems and lower levels of livestock mortality; (ii) improvements in the access to and provision of public facilities and social services. A review of the parent project‟s economic and financial analysis concludes that the same expected impacts would apply to the additional financing. 36. Technical. The overall design is unchanged from the original project. Under this design, there is some flexibility to innovate and pilot new approaches consistent with the project and component objectives. The design and procedures under the Community Initiatives and Pastoral Risk Management components has proven to be robust during the implementation of the project to date and no major changes are deemed to be necessary. 37. Fiduciary. The assessment for the additional financing has concluded that the project will continue to meet the Bank‟s minimum financial management requirements, as stipulated in BP/OP 10.02. No outstanding audit issues exist with the parent project. The Bank‟s audit and Interim Financial Reports (IFR) requirements will remain the same and also apply for the additional financing. The SLPO, which has been managing the existing Bank project for over 3 years, will continue to manage the additional financing. The accounting policies and procedures of the existing project will also apply for the additional financing. The Financial Management Manual will be updated to integrate the specific requirements of the additional financing. With the actions to be taken by SLPO, such as applying the new internal control policy and more training provided to lower level project staff, the existing ISR FM rating for SLP2 will be upgraded from Marginally Satisfactory to Satisfactory. The format of the IFRs will remain the same as agreed to under the existing project. 38. Procurement arrangements would remain the same as for the parent project. A revised Procurement Plan has been prepared for the Additional Financing period. The majority of procurement under the Additional Financing would be subject to procurement post review (the CIF and PRM Fund), much of this procurement would be conducted at the soum and aimag levels. The Bank would conduct post review during regular supervision mission, as is conducted under the parent project. Overall procurement cycle management and organization under the parent project has been Satisfactory, and the capacity of the implementation agency is Satisfactory. The procurement risk rating for the project is Substantial. The new Procurement Guidelines and Consultant Guidelines, January 2011, would apply for the Additional Financing. 39. Safeguards. As described above, there is no significant proposed change in the project activities, nor the project location. The Mid Term Review, conducted in June 2010, concluded that there were no outstanding social or environmental safeguard issues. 9 Annex 1: Results Framework and Monitoring MONGOLIA: Second Sustainable Livelihoods Project Additional Financing Results Framework PDO Project Outcome Indicators Use of Project Outcome Information Current Proposed Current Proposed Current Proposed No change Percentage of herders and soum governments No change Analyze project effectiveness in terms of No change To enhance taking actions to mitigate pastoral risk (i.e., behavioral change and policy impact and use to livelihood pasture land management and risk response fine-tune pastoral risk management strategies. security and plans developed and implemented). Assess impact on the ground to guide adjustment sustainability by Percentage of herders and local officers of project design, particularly the pasture- scaling up perceiving improvement in pasture land management plans, if needed. institutional condition attributable to project interventions mechanisms that Measure improvement in community reduce the Percentage of citizens satisfied with the empowerment and make adjustment in vulnerability of outcomes of CIF investment. mechanisms and resource allocation if needed. communities Increased number of loan beneficiaries at Monitor improvement in access to financial throughout soum level and below. services to rural citizens and guide improvement Mongolia. in MDF design. Increased income of loan beneficiaries at Evaluate efficiency of MDF to help loan soum level and below. recipients to expand and diversify income options. Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Current Proposed Current Proposed Current Proposed Component 1 No change Percentage of aimag and soum governments No change Assess the outcome of LEWS to help fine-tune its No change Effective and herders receiving information from design and improve its efficiency and strategies to plan LEWS which is both regular and perceived effectiveness. for and respond as useful. to pastoral risks institutionalized Number of soums preparing, financing and Monitor progress of institutionalization of pasture and functioning implementing annual pasture land land management plans and adjust the nationwide. management plans. 10 mechanisms if needed. Good practices in pastoral livelihood improvement demonstrated in different agro- Document and disseminate lessons learned to ecological zones. improve future pastoral livelihood strategies and investment in PRM. Multi-level institutional framework for pastoral risk management established Monitor vertical/horizontal coordination to help nationwide. improve communications and strengthen institutionalization. Component 2 No change No change Percentage of citizens who agree that CIF Evaluate level of empowerment of citizens to Effective, socially No change investments are aligned with their priorities. guide improvement of the effectiveness of inclusive and mechanisms during sub-project identification. transparent mechanisms Percentage of bagh citizens participating in Monitor level of participation and adjust established that the bagh meetings. community mobilization approaches if needed. empower citizens Monitor quality of sub-projects to help improve Percentage of public facility improvement to identify and community capacity process during project sub-projects evaluated and accepted as good implement implementation. quality by the State Inspection Agency. priority small public facility Percentage of soums utilizing at least 80% of Monitor financial progress to guide resource improvement the annual CIF allocation. allocation and improvement of investment projects efficiency. Increased number of loan products accessible No change Monitor the improvement in the provision of No change Component 3 No change by poor rural citizens at soum level and financial services to rural citizens and guide fine- Deepen and below. tuning and/or changes to lending instruments, if widen access to necessary. sustainable Total number of PFIs operating at soum level Monitor improvement in access to financial financial services or below. services by rural citizens through increased for rural citizens. competition of PFIs. Percentage of PFIs with non-performing Monitor portfolio quality and financial loans of less than or equal to 5%. performance of PFIs to measure sustainability. 11 Arrangements for results monitoring Baselines Target Values Data Collection and Reporting Project Outcome Indicators 2 YRx YR YR Frequency Data Responsibility Original (At AF x+1 x+2 and Reports Collection for Data Apprsl) Instruments Collection Current Proposed Percentage of beneficiaries (i.e. No Set by 69% 80% 85% Prior to the Baseline, Consulting herders and soum governments, etc) change baseline project, Mid- special firm taking actions to mitigate pastoral risk survey term review, surveys. (pasture land management and risk end of PY 5. response plans developed and implemented). Percentage of herders and local Perceived 5 66% 80% 85% End of PY2, Special SLPO, officers perceiving improvement in years average end of PY 5. surveys consulting pasture land condition attributable to condition firm project interventions. prior to the project Percentage of citizens satisfied with Not available 77% 60% 80% End of PY2, Special Consulting the mechanism and outcomes of CIF (mechanism) end of PY5. surveys firm investment. 75% (outcomes) Increased number of loan Set by 32% 25% higher 35% Baseline MIS, special SLPO/MMO beneficiaries at soum level and below. baseline higher survey, Mid- survey survey term review, end of project. Increased income of loan beneficiaries at soum level and below. Not available Not 25% higher 25% MTR, end Special survey SLPO/MMO available3 higher PY5 Intermediate Outcome Indicators Current Proposed 2 Target value at time of additional financing appraisal becomes the revised baseline. 3 Impact assessment on income changes on-going and scheduled to be completed end June, 2011. 12 Component 1: PRM Percentage of aimag and soum No Set by 0% 60% 60% Annual MIS, special SLPO, governments and herders receiving change baseline reporting, study consulting information from LEWS which is survey baseline firm both regular and perceived as useful. survey, mid- term, end of project Number of soums preparing, Set by 256 250 300 Annual MIS, special SLPO, financing and implementing annual baseline reporting study consulting pasture land management plans. survey firm Good practices in pastoral livelihood Set by Satisfactory Satisfactory Satisfactory Mid-term, end MIS, special SLPO, improvement demonstrated in baseline of project study consulting different agro-ecological zones survey firm (- number of viable income diversifying businesses created MIS, Special SLPO - number of viable feed production study processing and distribution businesses created - awareness raised among all key MIS, Special SLPO stakeholders of the lessons generated study in the demonstration areas) Multi-level institutional framework Set by Emerging Satisfactory Satisfactory Mid-term, end Special study Consulting for pastoral risk management baseline of project firm established and functional nationwide. survey Component 2: Community Initiatives Fund No 25% 24% 45% 30% Annual MIS, SLPO Percentage of bagh citizens change reporting Supervision participating in the bagh meetings Percentage of citizens who agree that Set by 85% 25% higher Mid-term, end Special survey Consulting the CIF investment is aligned with baseline of project firm their priorities survey Percentage of public facility improvement sub-projects evaluated Zero 100% 90% 90% Annual MIS, SLPO and accepted as good quality by State reporting supervision Inspection Professional Agency. Percentage of soums utilizing at least Zero 84% 90% 90% Annual MIS, SLPO 13 80% of annual CIF allocation. reporting supervision Component 3: Microfinance No Development change Increased number of loan products Set by 29% 35% 35% Mid-term, end MIS, SLPO/MMO accessible by poor rural citizens at baseline increase of project supervision soum level and below. survey Total number of PFIs operating at Set by 22% 20% 25% Mid-term, end MIS, SLPO/MMO soum level or below. baseline increase of project supervision survey Percentage of PFIs with non- Set by 95% 90% 95% Annually MIS, SLPO/MMO performing loans of less than or equal baseline supervision to 5% survey 14 Annex 2 : Operations Risk Assessment Framework Project Development Objective(s) To enhance livelihood security and sustainability by scaling up institutional mechanisms to reduce the vulnerability of communities throughout Mongolia. PDO Level Results 1. Percentage of herders and soum governments taking actions to mitigate pastoral risk (i.e., pasture land Indicators: management and risk response plans developed and implemented). 2. Percentage of herders and local officers perceiving improvement in pasture land condition attributable to project interventions 3. Percentage of citizens satisfied with the outcomes of CIF investment. 4. Increased number of loan beneficiaries at soum level and below. 5. Increased income of loan beneficiaries at soum level and below. Risk Category Risk Risk Description Proposed Mitigation Measures Rating Project Low If there is a change of direction from government Regular communication with all stakeholders would continue Stakeholder Risks or other donors active in the areas of local throughout the preparation and implementation phases. development, pastoral risk management or microfinance development, which creates tension MOF will continue to play project champion role as a neutral with the activities implemented under the project. body that has an interest and the power to convene and Also there are different interest groups within arbitrate among sectoral ministries. relevant ministries and agencies which may impact on the project implementation. Implementing Agency Risks  Capacity High If the project funds will not be used for the Project internal control policy will be finalized and distributed intended purposes or without due efficiency and to all financial staffs. More training and guidance will be effectiveness, such as misuse of project funds, loss provided by SLPO. of project assets, improper reporting, and insufficient funds. Any of the above will negatively MOF is currently reviewing PIU salary levels to retain and impact project implementation. attract good capacities and to explore option to peg PIU salaries to some index that reflects changes in private sector pay scales.  Governance Low If there is a sudden change of leadership in the If changes in the PSC occur during the implementation period, implementation agency or Project Steering the Bank team would work closely with the new members to 15 Committee (PSC), the governance performance ensure that the project and their role is well understood. might be impacted. With elections due in 2012, there is a likelihood of changes in the composition of the PSC.  Fraud & Low If fraud and/or corruption are discovered during Controls are in place for against fraud and corruption, and these Corruption project implementation. have proved adequate. These will continue to be monitored during project supervision. Project Risks  Design Evidence emerges that the procedures under the One of the key indicators of the project will continue to be the project are not being adequately followed, leading satisfaction rates of citizens in the processes and outcomes of to dissatisfaction with the project design. the project. This would be closely monitored to identify any drops in satisfaction levels.  Social and The types of investments selected by communities The Environmental Assessment Framework and Indigenous Environmental change and create negative environment and/or Peoples Plan would be reviewed as part of the safeguards social impacts, which the current provisions are review. Any adjustments would be made, as required. unable to address.  Program and While there are some conceptual differences Regular meetings, at project level and donor level, would Donor between donor programs, it is the view of the task continue between the relevant programs to ensure that team that these programs are complementary. information on project design and implementation is shared. There is a low risk that other programs change Such consultations would include government officials to design and start to implement activities which are ensure all programs are aligned with government policy inconsistent with the AF activities  Delivery Quality Sustainability will be at risk if the country does not The Bank is engaged on the emerging policy and regulatory move on several fronts to institutionalize the framework for creating the institutional structures. This approaches which are being scaled up and engagement would be continued during the AF demonstrated under the AF. A rigorous M&E system has been established, including a Participatory M&E element, all of which feeds into a central Management Information System (MIS). Although the MIS has had some glitches, its quality is improving and the information it provides will be the key tool for measuring the quality of implementation. Overall Risk Rating at Overall Risk Rating During Comments Preparation Implementation Low Low 16 Annex 3: Status of Triggers Triggers from Phase I to Phase II Phase I to Phase II trigger Status of trigger Pastoral Risk Management Institutional framework for PRM established and functioning Achieved Soum-level management plans under implementation Achieved Herder organizations established and functioning Achieved Group-based approach to well management implemented Achieved PRM strategies successfully implemented in different agro-zones Achieved Fodder and hay making activities successfully demonstrated Achieved Local Initiatives Fund Management capacity at soum level created for implementing LIF Achieved LIF investments reflect community priorities Achieved The management and flow of funds are competently handled Achieved Legal and policy instruments in place for fiscal decentralization Waived* Output indicators met or exceeded Achieved A participatory M&E system is operating effectively Achieved Microfinance Outreach Microfinance Development Fund (MDF) established and operational Achieved Microfinance products tailored to the poor piloted in core aimags Achieved Revolving Loan Funds (RLFs) – three triggers No longer applicable** Index-based livestock insurance scheme developed and operational Achieved * The legal covenant relating to the implementation of this activity was legally waived by the IDA on December 7, 2005 given reforms in the government‟s fiscal policy framework which the Bank supported shortly after the Credit‟s approval. ** An IDA allocation for Revolving Loan Funds was included under the first phase on condition that there was a significant improvement in the performance (repayment) of these local government implemented credit funds. As this improvement did not occur, it was decided to cancel support for RLFs. Current status of triggers for moving from Phase II to Phase III Phase III Triggers4 Current Comments status Institutional innovations Achieved Institutional innovations under CI and MD with demonstrated components already being demonstrated success introduced nationwide, albeit with refinements needed. nationwide. Demonstration suom activities under PRM component remain to be implemented in remaining period of SLP2 and are regarded as key to success. Legislative and policy Partially The spirit of this trigger is that the approaches reforms adopted and achieved which have been piloted and demonstrated under 4 From SLP2 PAD. 17 Phase III Triggers4 Current Comments status implemented [for pasture the program are embedded in policy and/or land management]. legislation of the country. The program relates to and is contributing to several on-going policy discussions, including on pastureland management (a draft Pastureland Law is being considered by Parliament) and of decentralization and community participation (a draft Integrated Budget Law is being considered, plus amendments to other related legislation such as the Procurement Law). During the preparation of SLP2, it was agreed to make this trigger more specifically related to pasture land management. However, currently more progress is being made on the broader issues related to decentralization, though it should be emphasized that this does impinge on pastureland management as it provides clear responsibilities for pasture management public expenditure to aimag and soum levels. The National Livestock Program, adopted by Parliament in 2010, provides a framework for pasture management policy. Program evaluated and Achieved MIS/PM&E are fully functional; mid-term issues to be addressed impact assessments have been completed. have been identified. Pastoral Risk Management Local governments and On track MoU signed between NAMHEM and Mercy herders in at least 5 Corps on institutionalization of LEWS. After aimags regularly taking some technical difficulties, LEWS is now action to mitigate pastoral functional and on course to be nationwide by risk in response to 2012. Team now working on the application of information received LEWS information into local decision making. from the LEWS. At least 75% of sums Achieved The PRM Fund is now operational nationwide. throughout Mongolia prepare, finance and implement pasture land management plans. PRM strategies On track Demonstration sum activities under PRM developed and component are being implemented successfully tested for all agro-ecological zones/ herding systems. 18 Phase III Triggers4 Current Comments status Microfinance Development MDF achieves Partially A number of options are being considered by institutional self- On track government to institutionalize MDF. sufficiency. Substantial improvement On track Target for SLP2 MTR met for „increased in microfinance outreach number of loan beneficiaries at sum level or to the poor in rural areas below‟ (Currently 14.4% above baseline value). (20% of population in selected aimags have access to microfinance services) Community Initiatives 60% of citizens satisfied Achieved At time of MTR: 95% of users are satisfied with with the mechanism and CIF outcomes, and 81% of citizens are satisfied outcomes of CIF with CIF mechanisms. investment. 90% of public facility Achieved At time of MTR: 100% of completed CI public improvement sub- facility sub-projects have been inspected and projects evaluated and rated good quality by the competent authorities accepted as good by State (need to reword trigger as indicated in italics). Professional Inspection Agency. 19