The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) REPORT NO.: RES30302 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) APPROVED ON APRIL 25, 2014 TO DEPT. OF ECONOMIC AFFAIRS, MINISTRY OF FINANCE, GOVERNMENT OF INDIA TRADE & COMPETITIVENESS SOUTH ASIA Regional Vice President: Annette Dixon Country Director: Junaid Kamal Ahmad Senior Global Practice Director: Ceyla Pazarbasioglu-Dutz Practice Manager/Manager: Esperanza Lasagabaster Task Team Leader: Michael Olavi Engman, Shihab Ansari Azhar The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) ABBREVIATIONS AND ACRONYMS EA Environmental Assessment ERR Economic Rate of Return GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit IBRD International Bank for Reconstruction and Development ITP Information Technology Platform MoMSME Ministry of Micro, Small and Medium Enterprises MSME Micro, Small and Medium Enterprises NPV Net Present Value PDO Project Development Objective PMU Project Management Unit TCSP Technology Center Systems Program The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) BASIC DATA Product Information Project ID Financing Instrument P145502 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 25-Apr-2014 30-Jun-2020 Organizations Borrower Responsible Agency Dept. of Economic Affairs, Ministry of Finance, MSME Ministry Government of India Project Development Objective (PDO) Original PDO The Program’s Development Objective (PDO) is to enhance the productivity of MSMEs by improving their access to technology and business advisory services as well as skilled workers through systems of financially sustainable Technology Centers (TCs). OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-83300 25-Apr-2014 10-Nov-2014 19-Dec-2014 30-Jun-2020 200.00 23.82 176.18 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project status 1. Implementation Progress is rated moderately satisfactory. Implementation progress accelerated significantly during FY17 following a slow start in FY15-16. However, several activities under Component 1 are not progressing as originally planned for the following reasons. First, the Project Management Unit (PMU) has experienced significant challenges in the procurement of large technical assistance packages, which has led to delays in project implementation and adjustments to planned activities. Second, a grant provided by the Ministry of Micro, Small and Medium Enterprises’ (MoMSME) long-term partner the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH has financed some of the technical assistance activities that could not be procured under the IBRD loan, and are envisaged to be dropped from the Project. Because of these developments, the PMU and the World Bank task team believe a reduced scope of the project financed technical assistance activities under Component 1 and a somewhat different bundling of the activities are essential to achieve the project development objectives. 2. Activities under Component 2 (works and equipment) and Component 3 (technical assistance for project implementation) are progressing well and more than half the budget allocation for Components 2-3 has been committed. Market prices for works contracts have generally been higher than originally estimated during the design phase. The higher cost of building new and expanding and rehabilitating old technology centers has been factored in under the proposed project restructuring. Likewise, the total cost of equipment and machinery has also been higher than originally anticipated. The budget cost overruns due to costlier than anticipated works and machinery have been balanced by lower than anticipated spending on technical assistance and operating expenditures. 3. The prospects of achieving project objectives are rated moderately unsatisfactory under the current conditions. Several indicators in the Result Framework are directly tied to the technical assistance activities originally planned under Component 1 and which will not be financed under the IBRD loan anymore. Other indicators cannot be achieved under the original timeframe given the slow start in project implementation. The proposed revised Results Framework reflects the adjustments in project-financed activities and the commensurate adjustment in result targets. 4. An Implementation Status & Results Report will be filed upon the approval of the restructuring of the project. The revised PDO is likely to be attained and the rating of the Achievement of Development Objectives will therefore be upgraded to satisfactory. 5. The MoMSME complies with all covenants included in the Financing Agreement. B. Rationale for restructuring 6. The rationale for the restructuring is to take corrective action based on the conclusions from the project mid-term review and to ensure that the project delivers the desired development outcomes. The PMU is fully staffed and its work has led to significant implementation progress in the last year and a half. The procurement of works and equipment have either been completed or are at an advanced stage. Only two technical assistance packages remain in the procurement pipeline under the proposed revised project. The proposed changes will set the project on the right track to successfully expand and modernize the existing technology centers and nearly double the total number of technology iv The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) centers in India. The proposed restructuring will allow for the DO rating for this project to be upgraded based on the proposed revisions to the Results Framework. II. DESCRIPTION OF PROPOSED CHANGES C. Change in Project's Development Objectives 7. The original PDO is unnecessarily complex and includes linked activities. The main objective ('enhance productivity') is ill-defined and very difficult to measure. In addition, the proposed changes to the technical assistance activities under Component 1 would lead to the removal of the focus on 'business advisory services'. The proposed new PDO will focus on the intended outcomes (increase access to technology and skilled workers) and not on the means of achieving the intended outcomes. The proposed project restructuring keeps the broad integrity of the project largely intact. The means to achieve the PDO is still to increase the number of technology centers and strengthen the activities of the existing technology centers. The long-term effort to strengthen the institutional capacity and financial sustainability of existing and new TCs will continue throughout the project. The time required to turn an operating profit for the many new TCs will be longer than the 0-2 years they are expected to be in operation as per the revised timeline. Hence, financial sustainability is measured as an intermediate results indicator rather than a PDO outcome indicator. D. Change in disbursement projection 8. The proposed changes in the disbursement projection adjusts to the disbursements made until date and takes into consideration the expected payment schedule over the remaining time of the project. E. Change in Results Framework 9. The Results Framework is revised to: (i) reflect fewer activities financed under Component 1 (Technical Assistance); (ii) adjust targets that cannot be attained due to delays of project implementation; (iii) provide clarity regarding the definition of some indicators, including by making use of the Indian Financial Year (April 1 - March 31) throughout in the Results Framework, with the exception of the last quarter of the project (April 1, 2020, - June 30, 2020), and distinguishing clearly between annual and cumulative targets; (iv) and better support the interpretation of the revised PDO. See Annex 1 for detailed changes. F. Change to Components and Cost 10. The mid-term review of the project concluded that the budget for Component 1 (technical assistance) was higher than needed and required a revision downward. This revision is partly due to the separate and long-term partnership between MoMSME and the GIZ, which resulted in technical assistance provided on a grant basis. The budget for Component 1 is reduced from US$34 million to US$17 million. The ‘Technology Partners’ and ‘Cluster Network Managers’ that were included in the original Project Appraisal Document have been replaced with a Technology Cluster Manager. In addition, the Information Technology Platform (ITP) Service Provider will now focus on providing an enterprise resource planning solution for the TCs to help manage information, strengthen reporting systems, and provide skills development training. The initial delays in project implementation means that some of these long-term technical assistance contracts will be shorter than anticipated and has led to lower than anticipated budget allocations. 11. The project has procured most of the works and the market rates revealed in competitive bidding processes have led to higher than estimated costs for the building and upgrading of technology centers (works, machinery). A higher budget allocation is hence required to keep up with the planned expansion plans. In addition, the Government of India’s v The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) parallel financing for ongoing operational costs have been lower than anticipated and the Government of India is therefore also reallocating resources from operational expenditures to works and machinery. Consequently, there is a proposed reallocation of US$17 million from Component 1 to Component 2 that is needed to achieve the project development objective. The restructuring offers some flexibility with regards to the potential engagement of a public procurement agency fulfilling explicit financial management and procurement process standards. G. Appraisal Summary Change in Economic and Financial Analysis 13. The integrity of the project largely remains intact following the restructuring. The number of new technology centers that are being built and the number of old technology centers that are being expanded and modernized do not change. However, the disbursement schedule changes somewhat (as below). The reduction in the budget for technical assistance, which is partly due to separate grant funding and partly due to a less ambitious and more integrated contractual approach, is used to balance the higher than anticipated costs of works and new machinery. 14. The restructuring is adjusting expectations from the project design stage to be in line with the actual outcomes documented at the mid-term review stage. A slow start has led to the project today lagging the original implementation time line. The implications for the Economic and Financial Analysis are relatively modest. The expected benefits from the project-financed activities will be delayed by roughly two years. The expected costs from the project-financed activities will also be delayed by two years. Thus, the net value of the project is not changing in a noteworthy way although the realized disbursement and new disbursement projections are integrated in the model. 15. The Economic and Financial Model is replicated with some basic new assumptions about the potential downside of a decrease in spending on consultancy and new learning material (i.e. reflecting the reduction in budget for Component 1). The following assumptions were made: (i) the estimated wage premium for short-term course work is reduced by one-fifth of the original estimates; (ii) the estimated wage premium for long-term course work is also reduced by one-fifth of the original estimates; and (iii) the share of MSMEs benefiting meaningfully by technology center interventions is reduced by five percentage points (or from 75 percent to 70 percent). These base assumptions are then tested in a high case (-15%/-15%/-3%) and a low case (-25%/-25%/-7%) to assess the sensitivity of the outcomes. The re-modeling exercise highlights the positive impact the project still is expected to have (see Table 1). Table 1: Net present value (NPV) and economic rate of return (ERR) after depreciation Original PAD Low case Base case High case Discount rate: 10% NPV: US$483mn NPV: US$364mn NPV: US$395mn NPV: US$427mn ERR: 31% ERR: 26% ERR: 27% ERR: 28% Discount rate: 12% NPV: US$391mn NPV: US$285mn NPV: US$313mn NPV: US$340mn Discount rate: 15% NPV: US$280mn NPV: US$191 mn NPV: US$214mn NPV: US$237 16. The base case scenario above would lead to a reduction in the net present value under a 10 percent discount rate from US$483 million to US$395 million. The economic rate of return would drop from 31 percent to 27 percent. The model thus holds up and indicates that even in a relatively pessimistic scenario the project will yield positive returns to the country. Even the more conservative, low-case scenario yields an ERR of 26 percent and a NPV of US$364mn. In addition, the original model makes use of a twelve-year discount period and the long-term nature of the interventions— including both the cycle time (from concept/design to operations) and the continuous generation of benefits—arguably warrants a longer discount period. A more recent (and similar) World Bank financed project made use of 15 years. vi The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) III. SUMMARY OF CHANGES Changed Not Changed Change in Project's Development Objectives ✔ Change in Results Framework ✔ Change in Components and Cost ✔ Change in Disbursement Estimates ✔ Change in Implementation Schedule ✔ Change in Economic and Financial Analysis ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Other Change(s) ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ vii The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_PDO_TABLE PROJECT DEVELOPMENT OBJECTIVE Current PDO The Program’s Development Objective (PDO) is to enhance the productivity of MSMEs by improving their access to technology and business advisory services as well as skilled workers through systems of financially sustainable Technology Centers (TCs). Proposed New PDO The objective of the Project is to increase access to technology and skilled workers for micro, small and medium enterprises at Technology Centers. OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE Number of work orders accepted by technology centers (annual, in '000) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 23.00 15.00 41.00 Revised Date 31-Mar-2012 31-Aug-2017 31-Mar-2020 Number of individual enterprises accessing services at technology centers (annual, in '000) Unit of Measure: Number Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 0.00 5.60 6.90 New Number of medium- and long-term trainees employed within six months of graduation from technology centers (annual, in '000) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 3.60 6.40 7.70 Revised Date 31-Mar-2012 31-Mar-2017 31-Mar-2020 viii The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) TCs' gross profit before depreciation (not including land) (in Millions) Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 3.50 1.10 12.00 Marked for Deletion Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Intermediate Indicators IO_IND_TABLE Revenue generated by technology centers from production support and consultancy (annual, in million) Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 4.80 7.00 8.60 Revised Date 31-Mar-2012 31-Mar-2017 31-Mar-2020 Capacity utilization of existing technology center machinery Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 55.00 73.00 75.00 Revised Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Cumulative number of technology roadmaps developed by TCM and endorsed by industry associations Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 12.00 Revised Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Number of trainees trained (annual, in '000) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 77.00 150.00 180.00 Revised ix The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) Date 31-Mar-2012 31-Mar-2017 31-Mar-2020 o/w external trainers trained Unit of Measure: Percentage Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 1.00 6.00 4.00 Revised o/w with newly developed contents Unit of Measure: Percentage Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 0.00 40.00 50.00 Marked for Deletion o/w female Unit of Measure: Percentage Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 10.00 13.00 18.00 Revised o/w from low income states Unit of Measure: Percentage Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 30.00 43.00 44.00 Revised o/w from disadvantaged section of society (SC/ST) Unit of Measure: Percentage Indicator Type: Custom Supplement x The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) Baseline Actual (Current) End Target Action Value 29.00 41.00 44.00 Revised Cumulative number of skills development contents for Centers of Excellence approved by industry associations and/or certifying agencies Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 2.00 0.00 6.00 Revised Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Number of needs assessment and related business plans developed by CNMs and endorsed by Industry Associations Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 10.00 Marked for Deletion Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Value of TCs' businesses generated with support of Cluster Network Managers (in Millions) Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 6.40 Marked for Deletion Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Number of users of IT Platform ('000) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 150.00 Marked for Deletion Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Cumulative number of new technology centers built Unit of Measure: Number Indicator Type: Custom xi The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) Baseline Actual (Current) End Target Action Value 0.00 0.00 15.00 Revised Date 31-Mar-2012 31-Aug-2017 30-Jun-2020 Gross profit by existing technology centers before depreciation excluding land (million) Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 3.50 9.20 12.00 New Date 31-Mar-2012 31-Mar-2017 30-Jun-2020 OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Technical Component 1: Technical assistance to the existing and 34.00 Revised assistance to the existing and 17.00 new Technology Centers new Technology Centers Component 2: Investments to Component 2: Investments to upgrade existing and develop 351.00 Revised upgrade existing and develop 368.00 new Technology Centers new Technology Centers Component 3: Technical Component 3: Technical assistance to the MSME assistance to the MSME Ministry 15.00 No Change Ministry for Project 15.00 for Project implementation and implementation and Monitoring and Evaluation Monitoring and Evaluation TOTAL 400.00 400.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2014 0.00 0.00 xii The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) 2015 686,424.28 686,424.28 2016 3,934,324.75 3,934,324.75 2017 51,520,000.00 7,290,435.02 2018 107,187,878.51 45,088,815.95 2019 32,781,372.46 85,000,000.00 2020 3,890,000.00 58,000,000.00 xiii The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) PDO (original): To enhance the productivity of MSMEs by improving their access to technology and business advisory services as well as skilled workers through systems of financially sustainable Technology Centers (TCs). PDO (revised): To increase access to technology and skilled workers for micro, small and medium-sized enterprises at technology centers. Realized results New targets Original targets Original targets Results Indicator Unit Description IFY15 IFY16 IFY17 IFY18 IFY19 IFY20 FY20* PDO Indicators 32.0 36.0 34.0 Number of enterprises paying for the services of TCs # Original. Dropped. Reformulated version, see 28.0 34.0 40.0 47.0 53.0 60.0 NA below, 1.:  1. Number of work orders accepted by technology Reformulated. Clearer definition. Revised 36.0 38.0 41.0 41.0 centers (annual, in '000) targets.  2: Number of individual enterprises accessing services at # NA NA 5.7 6.0 6.3 6.9 6.9 New. technology centers (annual, in '000) Number of long term trainees employed by industry, 5.7 6.1 6.4 Original. Dropped. Reformulated version, see including MSMEs, 6 months after graduating from TCs 11.0 14.0 17.0 20.0 23.0 26.0 NA below, 3.:  3. Number of medium- and long-term trainees employed Reformulated from above. Clearer definition. within six months of graduation from TCs (annual, in # 6.7 7.0 7.7 7.7 Revised targets. '000) 14.3 14.9 9.2 Original. Dropped. Moved to become an TCs' gross profit before depreciation (not including land) 5.0 8.0 10.0 11.0 11.0 12.0 NA intermediate Indicator, with revised targets. Intermediate Results Indicators Access to Technology Revenue of TCs from access to technology activities 7.9 7.8 7.0 Original. Dropped. Reformulated version, see (production support and consultancy) 6.0 7.0 8.0 10.0 12.0 14.0 NA below, 4.:  4. Revenue generated by technology centers from Reformulated from above. Clearer definition. US$ 7.8 8.2 8.6 8.6 production support and consultancy (annual, in million) Revised targets. 59 71 73 Original. Dropped. Reformulated version, see Capacity utilization of TCs machines 60 65 70 70 70 70 NA below, 5.:  5. Capacity utilization of existing technology center Reformulated from above. Clearer definition. % 73 74 74 75 machinery Revised targets. The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) Realized results New targets Original targets Original targets Results Indicator Unit Description IFY15 IFY16 IFY17 IFY18 IFY19 IFY20 FY20* Number of technology strategies/roadmaps developed 0 0 0 Original. Dropped. Reformulated version, see by TPs and endorsed by Industry Associations and IC 3 5 10 15 15 15 NA below, 6.:  6: Cumulative number of technology roadmaps Reformulated from above. Clearer definition. developed by TCM and endorsed by industry # 0 4 9 12 Revised targets. associations Access to Skilled Workers 159 180 150 160 170 180 180  7. Number of trainees trained (annual, in '000) # Revised targets. 105 134 164 193 223 250 NA 0 0 6 4 4 4 4 a) o/w external trainers trained % 1 2 2 2 2 2 NA 13 16 13 14 15 17 18 b) o/w female % 11 11 12 13 14 15 NA Revised targets. 35 36 43 40 40 42 44 c) o/w from low income states % 35 40 40 40 40 40 NA 38 43 41 35 40 42 44 d) o/w from disadvantaged section of society (SC/ST) % 30 30 30 30 30 30 NA Dropped. Revised activities in Component 1 do e) o/w with newly developed contents % 0 25 30 35 40 50 NA not include these. Annual number of skills development contents for 0 0 0 Original. Dropped. Reformulated version, see Centers of Excellence approved by industry associations # 3 3 3 NA 2 2 2 below, 8.: and/or certifying agencies  8. Cumulative number of skills development contents for Reformulated from above. Revised targets. Centers of Excellence approved by industry associations 0 0 4 6 Modified definition. and/or certifying agencies Upgrading and/or developing of Technology Centers 0 0 0 Original. Dropped. Reformulated version, see Number of new Technology Centers built 5 3 0 NA 0 2 5 below, 9.: Reformulated from above. Revised targets.  9. Cumulative number of new technology centers built # 0 8 13 15 Modified definition Revised targets. This was previously a PDO  10. Gross profit by existing technology centers before 14.3 14.9 9.2 10.0 11.0 12.0 12.0 US$ outcome indicator becoming an intermediate depreciation excluding land (million) 5.0 8.0 10.0 11.0 11.0 12.0 NA indicator as PDO changed. Access to Business Advisory Outcome dropped from PDO The World Bank TECHNOLOGY CENTER SYSTEMS PROJECT (TCSP) (P145502) Realized results New targets Original targets Original targets Results Indicator Unit Description IFY15 IFY16 IFY17 IFY18 IFY19 IFY20 FY20* Dropped. Revised activities in Component 1 do Number of users of IT platform (‘000) # 0 2 5 5 3 0 NA not include these. Value of TC’s businesses generated with support of Dropped. Revised activities in Component 1 do US$ 0.8 1.6 3.2 4.8 6.4 6.4 NA Cluster Network Managers (million) not include these. * Note that the last column only covers one additional quarter (April 1 – June 30), i.e. the first quarter of the Indian Financial Year (ending March 31). This does not present any issue for cumulative indicators but the results for the annual indicators (#1-4 and #6) will either be irrrelevant or unavailable. The table above is simply reiterating the annual target for IFY20 in the last column for presentational reasons. See PAD Data Sheet above for reference. NA = Not applicable.