Document of The World Bank Report: 70935-PA RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF RURAL PRODUCTIVITY PROJECT LOAN 7439-PA March 21, 2007 TO THE REPUBLIC OF PANAMA October 26, 2012 Sustainable Development Department Latin America and the Caribbean 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. ABBREVIATIONS AND ACRONYMS ANAM National Environmental Authority IFR Interim Financial Reports MIDA Ministry of Agricultural Development MEF Ministry of Finance (Ministerio de Economía y Finanzas) PIU Project Implementing Unit PDO Project Development Objective RPA Rural Productive Alliance Regional Vice President: Hasan A. Tuluy Country Director: Carlos Felipe Jaramillo Sector Manager / Director: Laurent Msellati / Ede Jorge Ijjasz-Vasquez Task Team Leader: Pierre-Olivier Colleye 2 REPUBLIC OF PANAMA RURAL PRODUCTIVITY PROJECT P064918 CONTENTS Page A. SUMMARY ............................................................................................................... 4 B. PROJECT STATUS ................................................................................................. 4 C. PROPOSED CHANGES .......................................................................................... 6 Annex 1. PROJECT INDICATORS……………….…….…………………………….9 3 REPUBLIC OF PANAMA RURAL PRODUCTIVITY PROJECT LEVEL II RESTRUCTURING PAPER A. SUMMARY 1. In letters dated July 9, 2012 and August 17, 2012, the Ministry of Economy and Finance requested the World Bank to proceed with the restructuring of Loan 7439 PA. This loan finances the Panama Rural Productivity Project (P064918), and co-finances the GEF Grant TF56628 for the Panama Rural Productivity and Consolidation of the Atlantic Mesoamerican Biological Corridor Project (P083045). This Level Two restructuring of the IBRD Loan would provide for (i) the reformulation of two of the Project’s Development Objective (PDO) indicators to better reflect and quantify the targets of the Project; (ii) a first 18-month extension of the Closing Date from January 31, 2013 to July 31, 2014; and (iii) a reallocation of Loan proceeds. 2. The proposed changes would allow the Project to: (i) fully reach its Development Objective of “contributing to increased productivity among organized rural small-scale producers, through their participation in productive alliances, while ensuring the sustainable use of natural resources and the conservation of globally important biodiversity�; (ii) use and disburse all the loan funds; (iii) provide the necessary funding to all the rural productive alliances that have been working with the project on preparing investment plans and are waiting for funds for their sub-projects; and, (iv) strengthen the post-funding support services to the beneficiaries, which would complement the sub- projects investments. In addition, the reallocation of funds would allow the strengthening of the monitoring and evaluation activities and project management and enhance the sustainability of the investments. 3. The reformulation of two of the PDO Indicators will also lead to the improvement of the reporting on the impact by the Project Implementation Unit (PIU), especially in the areas of sustainability and environmental impact. B. PROJECT STATUS 4. The Project has two implementing agencies: (i) the Ministry of Agricultural Development (MIDA) for Component 1 (Support for Productive Alliances), Component 2 (Productive Alliances), and Component 4 (Project Management and Monitoring and Evaluation), in the amount of US$29.4 million, out of the US$39.4 million loan, and (ii) the National Environmental Authority (ANAM) for Component 3 (Environmental Subprojects and Strengthening of the National Protected Areas System) for the remaining US$10 million. Each agency has its own Project Implementation Unit and its own Results Framework. 5. MIDA-related activities. The Loan was approved on March 21, 2007 and became effective on November 1, 2007. Progress towards the achievement of the PDO and Implementation Progress are both Moderately Satisfactory, and all project flags have 4 been removed in the past 12 months. In 2010, after a period of weak implementation in the first two years of the Project execution, due to institutional instability and to a consequent lack of national financing, the Project has picked up pace significantly. In 2011, the Project disbursed its allocated budget for 2011 of about US$3 million, and in the first four months of 2012 it disbursed almost US$2 million. As of October 22, 2012, 58% of MIDA-related funds have been disbursed. Following the promising results of 2010 and in 2011, the Ministry of Finance (MEF) increased the budget allocation to the project and fully funded the 2012 request from the Ministry of Agriculture, leading the Project activities to resume at full pace. The current draft of the national budget for 2013 also includes the full requested allocation which would allow all remaining funds to be disbursed by the proposed new Closing Date of the Loan. 6. The PIU has completed the agreed action plan to enhance the performance and impact of the project: it has conducted a review of the existing portfolio of projects/investments, eliminating and restructuring sub-projects that were not satisfactory, and selecting a current portfolio of sub-projects that are expected to use all the remaining loan funds efficiently and productively. The PIU has also strengthened its Monitoring and Evaluation staff and system, and in 2012, for the first time since effectiveness, has been able to report on three out of the four PDO indicators, which further indicate that the project's objectives remain reachable. The PIU has improved significantly its compliance with the Bank's Safeguards and has appropriately strengthened its focus on fiduciary and compliance issues as well. An audit firm has been hired to conduct a review of the fiduciary activities of the MIDA sub-projects to ensure compliance with Project requirements. 7. As of mid-2012, the MIDA-related activities have completed the following: 121 alliances working with 4,400 producers and representing close to US$20 million of grants were at various levels of preparation, including 59 sub-projects under implementation (representing matching grants totaling US$11 million) and another 10 sub-projects about to receive their initial grant (totaling about US$1.6 million). The final approval of the remaining sub-projects will take place shortly after the extension of the closing date to allow sufficient time for implementation. 8. ANAM-related activities. The loan provides US$10.0 million of co-financing to a US$6.0 million GEF Grant TF56628 to ANAM. The Grant was approved by the Board on June 15, 2006, and became effective on January 2007, 10 months before the loan effectiveness date. Progress towards the achievement of the Grant PDO is Moderately Satisfactory. However, implementation progress is rated Moderately Unsatisfactory, in line with the ratings given to Financial Management, Procurement, and Safeguards compliance. The implementation of this component suffered severe delays in the first two years of the project. Since June 2011, Project performance has shown substantial progress, with all activities of the action plan established during the Mid-Term Review carried out. The action plan included (i) the hiring of the vacant positions in the PIU, (i.e. procurement, social and environmental specialists, accountant, and subprojects coordinator), (ii) the update of the accounting register (needed because of the lack of an accountant since December 2010), (iii) a new Annual Operating Plan, (iv) the resumption of disbursements to sub-projects that had been put on hold because of the change of management in ANAM and (v) the submission of overdue audit report and IFRs. 5 Disbursements accelerated considerably to reach US$7.0 million (or 70%) of the IBRD Loan and US$5.5 million (or 90.96%) of the Grant amount. 9. As of mid-2012, the ANAM-related activities have completed the following: (a) 36,126 ha of forests and other natural ecosystems of global biodiversity significance in buffer zones of Protected Areas under effective conservation, reaching 72% of the target; (b) 308 environmental investments or subprojects under execution in 6 departments, 26 municipalities and 2 Comarcas that represent 88% of the target; (c) technical assistance provided to help communities better commercialize their products; (d) 8 co-management agreements in Protected Areas negotiated and established (vs. a target of 12); (e) local environmental educational programs strengthened; (f) ongoing specific studies for the establishment of a payment for environmental services (PES) mechanism; (g) a monitoring system for biodiversity implemented, and (h) communication strategy implemented. C. PROPOSED CHANGES Project Outcome Indicators 10. During the Mid-Term Review, the Bank Team and MIDA agreed that two of the four PDO indicators would need to be reformulated because they were either too vague in their definition or impossible to measure. As requested by the Government, two new measurable indicators are being proposed which aim to keep the spirit of the two original indicators. Ind. # Objective of Indicator Formulation Proposed New Reason for of Original Indicator change Indicator 2 Measure sustainability By the end of At least 75% of the As a large number of alliances the Project, at productive alliances of alliances started least 40% continue to operate their operation as increase in net one year after “new businesses�, revenues for having received the their starting profit the support of the was zero (or participating project and have a negative) and rural functioning therefore a 40% productive revolving fund. increase could not alliances. be computed. 4 Measuring By the end of By the end of the Original environmental impact the Project, Project, 10 percent formulation of the 10% reduction of sub-project area, indicator was not in area under as an effect of the clear. Mainly, it is annual crops project, was not sure what and cattle in converted to tree would have had to project area plantation for replace the annual on land multiple sustainable crops and cattle appropriate uses. production. for forestry uses. 6 Reallocation of Loan Proceeds 11. The reallocation among categories will allow MIDA and ANAM to strengthen the monitoring and evaluation of project activities, particularly the implementation of the productive and environmental subprojects. It will also finance the PIU-related costs associated with the extension of the Closing Date financed under Category 4 and 5 below. Most of the category increases are financed out of unallocated funds and, to a lesser extent, savings incurred during the first years of implementation. 12. The Loan proceeds will be reallocated as follows: Category of Expenditure Allocation % of Financing Current Current Revised Current Revised (1) Goods, Works, Non-Consultant 6,400,000.00 5,400,000.00 100% 100% services, Training, Consultants’ Services, and Operating Costs for Part 1 of the Project (2) Goods, Works, and Services for 19,000,000.00 19,000,000.00 100% 100% Productive Subprojects under Part 2 of the Project (3) Goods, Works, and Services for 6,000,000.00 5,112,321.43 100% 100% Environmental Subprojects under Part 3 of the Project (4) Goods, Works, Non-Consultant 2,350,000.00 4,527,678.57 100% 100% services, Training, Consultants’ Services, and Operating Costs for Part 3 of the Project (5) Goods, Works, Non-Consultant 3,350,000.00 4,597,885.97 100% 100% services, Training, Consultants’ Services, and Operating Costs for Part 4 of the Project (6) Refund of the Project Preparation 900,000.00 762,114.03 Amount Amount Advance payable payable pursuant pursuant Section 2.07 Section (a) of the 2.07 (a) of General the General Conditions Conditions (7) Unallocated 1,400,000.00 0 TOTAL AMOUNT 39,400,000.00 39,400,000.00 Closing date 13. The Project suffered considerable implementation delays and high staff turnover (including 5 PIU directors) during the first few years of operation, leading to the Government to decrease the annual budget allocation for the project in the third and fourth year. Since then, as mentioned above, considerable progress has been made in terms of disbursement, general implementation, supervision of safeguards and financing by the Government. 7 14. An extension of 18 months from January 31, 2013 to July 31, 2014 is necessary to allow the Borrower to conclude successfully the implementation and the monitoring and evaluation of the subprojects. Since this is the Project’s first extension and is of 18 months, it will need to be approved by the Country Director. Based on (i) the Project’s considerable progress in the last 12-18 months, (ii) the removal of the Project’s main bottlenecks (e.g., full funding allocation from the national budget), (iii) a full pipeline of eligible sub-projects whose financing would absorb all remaining funds and (iv) the PIUs recent track record in respecting the Project’s implementation schedule (sub-project approval, implementation and monitoring), the extension is expected to allow the project to reach its PDO. The extension would also allow all the sub-projects of producers that have been working with the Ministry of Agriculture to be funded as promised by the Government. All eligible activities to be financed have been agreed previously with the Bank, and will be included in the corresponding Annual Operating Plans for both MIDA and ANAM. Both agencies are in full compliance with the Bank’s financial management requirements, and there are no overdue audit reports and IFRs. With the extension of the Closing Date, the amendment will also postpone the delivery of the Project report to be prepared by the Client, established under Section IV.B.2 of Schedule 2, from the original to the new Closing Date. 8 ANNEX 1: Project Indicators Indicator Name Baseline Actual(Current) End Target By EOP, at least a 25% increase in sales Value Pre-project sales 18,8% 25% increase in pre- receipts of small-scale producers via receipts of Rural project sales receipts PRORURAL-financed productive alliances Producer for rural producer Associations associations. Date 16-May-2007 20-Apr-2012 31-Jul-20141 Comments Indicator Name Baseline Actual(Current) End Target By EOP, at least 40% increase in net Value 40.00 revenues for the participating Rural Date 20-Apr-2012 31-Jul-2014 Production Associations via the productive alliance. Comments Indicator to be reformulated Proposed revised indicator: At least 75% of through this the productive alliances continue to operate proposed one year after having received the support restructuring. of the project and have a functioning revolving fund. Indicator Name Baseline Actual(Current) End Target By EOP, at least a 20% increase in Value 24.00 20.00 membership in RPAs for the project area, Date 20-Apr-2012 31-Jul-2014 relative to baseline. Comments Indicator Name Baseline Actual(Current) End Target By EOP, 10% reduction in area under Value 7.00 10.00 annual crops and cattle in project area on Date 20-Apr-2012 31-Jul-2014 land appropriate for forestry uses Comments Indicator to be Proposed revised indicator: By the end of reformulated the Project, 10 percent of sub-project area, through this as an effect of the project, was converted to proposed tree plantation for multiple sustainable uses. restructuring. Indicator Name Baseline Actual(Current) End Target 140 RPAs trained and capable of Value 0 136 140 participating in productive alliances. Date 18-May-2007 20-Apr-2012 31-Jul-2014 Comments 1 Proposed new Closing Date 9 Indicator Name Baseline Actual(Current) End Target By EOP, at least 30 technical service Value 0 43 At least 30 TSPs providers (TSPs) trained and certified to Date 26-May-2008 20-Apr-2012 31-Jul-2014 provide technical assistance to RPAs and productive alliances. Comments Indicator Name Baseline Actual(Current) End Target At least 100 productive alliances proposed Value 0 121 At least 100 with quality Business Plans according to Date 01-Nov-2007 20-Apr-2012 31-Jul-2014 criteria set forth in Project Operational Manual. Comments Indicator Name Baseline Actual(Current) End Target 70 business plans approved by the External Value 0.00 100.00 70.00 Committee Date 16-May-2007 20-Apr-2012 31-Jul-2014 Comments Indicator Name Baseline Actual(Current) End Target 60 subprojects under implementation. Value 0 59 60 subproject Date 01-Nov-2007 20-Apr-2012 31-Jul-2014 Comments This number includes 4 sub- projects eliminated after execution had started. Indicator Name Baseline Actual(Current) End Target 5,000 small-scale producers participating in Value 0 2992 5,000 small-scale PRORURAL-financed productive alliances. producers Date 01-Nov-2007 20-Apr-2012 31-Jul-2014 Comments Indicator Name Baseline Actual(Current) End Target 85% satisfaction among RPAs regarding Value n/a 60% 85% technical assistance from certified service Date 01-Nov-2007 20-Apr-2012 31-Jul-2014 providers. Comments 10 Indicator Name Baseline Actual(Current) End Target By EOP, 10% increase in land under Value 10.00 perennial crops (previously under annual Date 20-Apr-2012 31-Jul-2014 cropping or pasture) by organized producers in project area. Comments n/a Indicator Name Baseline Actual(Current) End Target Annual Operating Plans successfully Value On-going yes executed Date 10-Dec-2007 20-Apr-2012 31-Jul-2014 Comments In progress Indicator Name Baseline Actual(Current) End Target Satisfactory technical and financial audits of Value No Yes Yes the Project Date 16-May-2007 20-Apr-2012 31-Jul-2014 Comments Indicator Name Baseline Actual(Current) End Target The M&E system reports satisfactory results Value 0 Yes Yes for the financed Business Plans. Date 26-May-2008 20-Apr-2012 31-Jul-2014 Comments A web based monitoring system (PENTAGON) is operational. Indicator Name Baseline Actual(Current) End Target Quarterly reports completed and sent to Value No On-going Yes Bank Date 16-May-2007 20-Apr-2012 31-Jul-2014 Comments 11