40148 PROJECTPAPER Borrower: Republic o f Mozambique Remonsible Anencv: National Commissionto Combat AIDS (CNCS) Revisedproject development objective/outcomes. Yes. Does the restructuredproject trigger any new safeguard policies? No. IBRD/IDA Others 2 IntroductoryStatement 1. This Project Paper seeks the approval of the Executive Directors to introduce changes in the Mozambique HIV/AIDS Response Project (the Project) (Grant No. H0300- Moz) andthe accompanying amendment to the Project's legal documents. 2. The proposed changes are as follows: (i) modify the project development objective (PDO) to indicate that the IDA i s only one player in the fight against HIVIAIDS and that its success will be judged through the success of key prevention and care activities. Thus the PDO will read as follows: "The Project Development Objective is to contribute to slow the spread o f HIV/AIDS inMozambique and mitigate the effects o f the epidemic through prevention and care activities''; (ii)change the results framework indicators by removing one outcome indicator, which makes a specific reference to prevalence rate, and adding one outcome indicator and modifying three intermediate outcome indicators that can be attributed to the Project; (iii) the change fundingmechanism inorder to allow IDA funds for Parts A, ByC and Eofthe Project to be channeled to the Common Fund of the National Commission to Combat AIDS (CNCS) together with funds from other bilateral and multilateral organizations; (iv) reallocate funds between categories; and (v) extend the closing date of the project by one year from December 31, 2008 to December 31,2009 in order to have sufficient time to implement the measures outlined above. This package o f measures will help improve the implementation of the project and help the government scale up the nationalresponse to the epidemic. BackgroundandReasonsfor Restructuring 3. The Project was approved by the Board on March 28, 2003, and became effective on August 15, 2003. The original grant amount was SDR 41.6 million, of which SDR 20.8 million or 50% has been disbursed. Project funding i s channeled through two government institutions: the CNCS and the Ministry o f Health (MOH). The implementation o f prevention activities (Parts A, B, C, and E o f the Project) is the responsibility o f the CNCS. Treatment o f opportunistic infections and the strengtheningo f service delivery (Part D) are implementedbythe MOH. 4. After effectiveness, project implementation was sluggish during the first two years. The slow progress was largely due to the fact that CNCS hadbeen directly managing the grant-making process itself and actually processing all subprojects from civil society and the public sector throughout the country. The large number o f small subprojects processed has resulted in high transaction costs and delays. The institution's engagement with line ministries was also slow during the initial two years. For these reasons the project was ratedunsatisfactory from May 2004 to March 2007 when, as a result of significant improvement in project management and implementation, it was upgradedto satisfactory. 5. After the mid-term review in February 2006, there has been significant improvement in project implementation, and the disbursements of IDA funds have increased significantly. For example, the number o f subprojects approved and implemented at the community level through all 11 provinces of the country increased from 664 in 3 2004 to around 1,800 in 2006. Also, the government has largely exceeded its targets interms of voluntary counseling andtesting centers created; numbero f people tested and advised; number o f facilities that offer prevention o f mother-to-childtransmission services; and the number o fpersons who receivehome based treatment. Private sector companies are increasing their work place preventive programs and more than 50 percent of the US$2 million allocated to them has been disbursed. The multi-sector response is gaining momentum. All ministries have started implementing their HIV/AIDSaction plans. CNCS has committed about US$ 10.0 million for the public sector (from IDA and other donors) and disbursements have reached about US$ 1.0 million. See updated Results Framework inAnnex 1. ProposedChanges 6. The proposed changes will modify slightly the PDO to make it more precise but the scope o f the Project will remainthe same. The changes include: (i) The modification o f the PDO as follows: "The PDO is to contribute to slow the spread o f HIV/AIDS in Mozambique and mitigate the effects o f the epidemic throughpreventionand care activities". (ii) The removal o f the outcome indicator: "By 2008, reduce by 25% the rate of increase in HIV prevalence among women inthe age group 15- 24" as prevalence rate is considered an inappropriate indicator to track the evolutiono fthe HIV/AIDSepidemic. (iii)The changes in the following outcomehntermediate indicators are introducedto better align them with United Nations General Assembly Special Session on AIDS (UNGASS). 1. "By 2008, the age of sexual debut has increased by one year over 2002 age" to read as follows: "By 2009, the percentage of 15-24 olds who had sex before the age 15 has declined to less . than20% from (baseline year) level." 2. "By 2008, the share o f number o f the population from the age group 15-49, who have had sexual partners outside the primary union inthe last 12 months has declined by 10% from the 2002 level" to read as follows: "By 2009, the percentage o f young men and women aged 15-24 who have had sex with a non- marital, non-cohabiting partner in the last 12 months has declined by 10% from the 2002 level." 3. "By 2008 the rate o f condom use in sexual encounters outside of primary relationship inthe last 12 months by persons 15-19, has increased by 20% from 2002 levels." To read as follows: "By 2009 the percentage ofyoung women and menaged 15-24 who used a condom at the last time they had sex with a non- regular partner, has increased by 20% from 2006 levels." 4 (iv) The addition of one intermediate outcome indicator to assess the functioning o f the monitoring and evaluation system as a management tool to assist CNCS in its coordinating and strategic roles concerning the national HIV/AIDS response. The intermediate indicator reads as follows: "By 2008, CNCS can report annually on at least 75% of the indicators in its national HN M&E Framework and that a report is disseminated to national leaders." 7. An important restructuring measure i s the contracting out o f the grant-making mechanism to a Grant Management Agency (GMA), a private company. This measure should have a strong impact on project implementation as grant making represents more than 60 percent o f the total project cost. The contract was signed on March 7, 2007, and since then the collaboration between the GMA and CNCS has been excellent. 8. CNCS i s inthe process o f strengthening its provincial offices by increasing staffing in financial management, and monitoring and evaluation. Inaddition the GMA will post technical advisors in each province, who will support the provincial offices in processing the subprojects. The role o f provincial offices o f CNCS i s to coordinate, promote and oversee the implementation o f HIV/AIDS interventions by different actors (public, private and civil society). These offices also have the authority to approve and finance local subproject proposals below a given threshold, and execute financial management and internal auditing functions. 9. To reduce transaction costs for the government, IDA will channel its funds for the CNCS parts of the Project through a Common Fund with other donors. The key donors o f the Common Fundare Canada, Denmark, DFID, Ireland, and Sweden. The Global Fundi s expected to join soon. 10. To allow time for the implementation o f the changes, the Closing Date will be extended by one year to December 31,2009. 11.The principles of IDA participation in the Common Fund are outlined in a Memorandum o f Understanding signed by IDA, partners, and CNCS on April 6, 2006. Each year at the time o f the Annual Review meeting, a common disbursement plan will be agreed upon between the CNCS and the Common Fund Partners (IDA and other donors participating in the Common Fund) for the following year. The contributions o f the Common Fund Partners will be transferred in installments upon agreement that certain triggers have been met. The triggers for the first disbursement are: (i)agreed and endorsed comprehensive, prioritized and costed Annual Operational Plan (AOP), including cash flow requirements; and (ii)Financial Monitoring Reports (FMRs) from the first three quarters o f the previous year. The triggers for the subsequent disbursements are: (i)draft o f external financial and procurement audit report from the previous year; and (ii) FMRs of the previous year plus the first quarter of the current year. For each fiscal year, the percentage of IDA financing will be basedon the total AOP, andneeds for financing from IDA and other Common Fund Partners. The lessons learned from the 2006 annual review were 5 submitted by CNCS to Common Fund Partners and the Bank for comments, and subsequently used in the formulation and discussion o f the AOP for 2007. In December 2006, the 2007 AOP was endorsed by all Common FundPartners. 12. A reallocation o f funds between categories i s proposed as follows. The amounts of the grant allocated for Part A (Community and Civil Society Initiatives), Part B (Capacity Building for the Civil Society HIV/AIDS Response), Part C (Ministerial Multi-Sector Response), and Part E (Program Management) o f the Project for disbursement categories 1-6 of Schedule 1 will be reduced to what has already been disbursed plus funds expected to be disbursed until the effectiveness of the amendment to the Development Grant Agreement (DGA). The amounts allocated to categories 1-6 include the outstanding amount from the original Special Account A o f US$ 1.15 million that the Recipient will document with eligible expenditures by September 30,2007. The difference between the original amounts for these categories and the new reduced amounts will be aggregated and reallocated to a new disbursement category 9 called "Works, Goods, Consultant Services, Training and Operating Costs for Parts A, B, C and E, and Sub-Grants for Subprojects under Parts A and C of the Project", for a total of SDR 14.31 million out o f a total grant of SDR 41.6 million. This will allow IDA to fund a portion o f the AOPs and Budgets of the CNCS. N o change will be made regarding the allocations for Part D implemented by the MOH. A table providingthe revised allocationof funds is presentedinAnnex 2. 13. This amendment also includes a correction to the wording o f Part C o f the Project description that allows funds for the Ministerial Multi-Sector response to be channeled for public sector subprojects. Inorder to allow for: (i) capacity buildingof Civil Society Organizations (CSOs); and (ii) the provision o f antiretroviral treatment by CSOs, the description of Part A (Community and Civil Society Initiatives) of the Project was modified to allow for facilitating agents to simultaneously undertake capacity building activities and implementation o f subprojects. Part B (Capacity Building for Civil Society HIV/AIDS Response) o f the Project is now limited to capacity needs assessment for CSOs and the establishment o f a data base to provide information on certain features o f the CSOs, their location and areas o f expertise. 14. The amendment also includes changes inthe procurement schedule to align the DGA with the current Bank procurement guidelines. To that effect, the proposed new Procurement Schedule includes the following changes: (i) insertion in Section Iof the Schedule 3, o f the applicable Bank Procurement and Consultants Guidelines dated May 2004, revised October 2006; (ii) the eliminationo fthe ceilings bythe aggregated amounts o f contracts for goods and works to facilitate smooth implementation of activities without the need o f further amendments to the Grant; and (iii) the increase of the threshold, under National Competitive Bidding, for goods from US$ 150,000 to US$200,000 and the introduction of a threshold of US$ 500,000 for works, for National Competitive Bidding. 6 Analysis 15.The proposed changes will not affect the economic, financial, technical and social aspects of the Project as appraised. The institutional arrangements will essentially remain the same, i.e. CNCS will continue to be the agency responsible for the implementation of parts A, B, C, and E and the M O H for part D. With the creation o f the Common Fund in November 2006, ajoint Financial Management Committee of the Common Fund was created to facilitate decision making. Members o f this committee include CNCS officials, and two representatives o f the Common Fund Partners. This committee i s not supposed to substitute CNCS in its decision-making capacity and authority. Since some discussions in the committee may include procurement issues, IDA will not take part in the Financial Management Committee deliberations. Donors and IDA have agreed on criteria for the prior review o f contracts above the thresholds defined in the DGA. To that effect, the DGA will be amended to reflect, inter alia, that subprojects will be appraised, approved, coordinated, monitored and evaluated by the GMA instead of CNCS, using essentially the same eligibility criteria andunder the same terms andconditions. 16. In addition, to reflect the mechanisms and guiding principles o f the Common Fund functioning, changes in the implementation program were made and include: (i)a description o f the AOP and budget including the process o f its approval by all parties; and (ii)a descriptionof the role and mandate o f the GMA and CNCS inrespect o f the grant making function. There are no exceptions to IDA policies as a result o f these proposed changes. 17. Of the three effectiveness conditions o f the Amendment Letter, two have been already met, namely: (i) adoption o f the revised Operations Manual in form and the substance satisfactory the Association; and (ii) that CNCS can produce Financial Monitoring Reports in form and substance satisfactory to the Association. The third condition refers to the receipt by the Association o f a refund in the amount o f US$ 1,350,000 o f the advance made to the original Special Account A. The submission by September 30, 2007 of documentation evidencing that the remaining outstanding advance o f US$1,150,000 has been used for eligible expenditures has been included as a covenant inthe Amendment Letter. The 2006 audit is due on June 30,2007. 18. The audit report o f 2005 was unqualified. Some management, accountability and internal control issues were raised by the auditor. The Bank sent a letter to CNCS urging it to address the issues raised in the audit report. CNCS is currently taking measures to: (i) improve its internal audit functions; (ii) strengthen the supervision o f provincial delegations o f CNCS; and (iii)recruit 11 financial managers with the objective o f having all o f them contracted by June 30,2007. 7 ExpectedOutcomes 19.As mentioned, the project development objective has been modified, i.e. "to contribute to slow the spread o f HIV/AIDS in Mozambique and mitigate the effects o f the epidemic through prevention and care activities". Expected outcomes and intermediate results are presented inAnnex 1. Benefitsand Risks 20. The proposed restructuring i s expected to make CNCS more efficient in providing financing to preventiveand mitigating actions by the public and private sector as well as civil society. It will also allow CNCS to better focus on its leadership and coordinating role and become more strategic in guiding the national response. Ultimately, as already mentioned in paragraph 2, a better project implementation would help reduce over time new HIV/AIDS infections, increase survival rates and improve quality o f life o f those infected. 21 The main potential risk i s that the restructuring measures take more time to have an effect. For example, the GMA could take longer to put inplace an efficient system o f grant making. This risk was mitigated through the selection criteria that required bidders to already have a strong experience in the implementation o f similar operations. Another risk would be for CNCS to take more time in improving its role o f coordination and leadership. Through policy dialogue and evidence from recent supervision missions, there are already signs that CNCS i s preparing itself to take that role and considering how to focus implementation on the sectors whose activities will have the greatestpotential impact. 22. Under the new implementation arrangements, CNCS will use an updated Operational Manual and will produce Financial and Monitoring Reports (FMRs) acceptable to the Association. A risk associated with the FMR i s the delay in reporting by implementing agencies that may impair the ability of CNCS to produce complete FMRs needed for disbursements to the Common Fund. To mitigate this risk, implementing agencies will be carefully instructed in the reporting requirements of the subprojects inaccordance with the guidelines set forth inthe subproject manual. 23. CNCS provincial offices and the GMA, who will process grants for subprojects, will follow the requirements o f the CNCS Financial Procedures Manual. This Manual describes the accounting system, internal control procedures, basis o f accounting, standards to be followed, authorization procedures, financial reporting process, budgetingprocedures, financial forecasting procedures, andcontract management. 24. The Internal Audit Unit o f CNCS has been strengthened by hiring additional staff. This unit now comprises seven internal auditors, including the Supervisor. CNCS is also recruiting an assistant auditor. Among other tasks, the Internal Audit unit is supporting the CNCS financial management unit by reviewing financial management arrangements o f organizations that are implementingsubprojects. 8 Annex 1 ResultsFramework Objectives I Outcomeindicators Baseline Progressto Target values date (2009) Project Development By 2009, the percentageof 15-24year olds n/a 27.7% <20% Objective who hadsex before age 15 has declinedto (UNAIDS less than 20%. 2006) To contribute to slow By 2009, the percentageo f young men and 60% Next DHS 50% the spreadofHIV/AIDS women aged 15-24 who have had sex with a (UNGASS (2008) in Mozambique and non-marital, non-cohabiting partner inthe 2003- mitigate the effects of last 12 months has declined by 10% from the epidemic through I the 2002 level 2005) prevention and care B y 2009 the percentageof young women 31% Next DHS 51% activities. and menaged 15-24who useda condom at (UNGASS, (2008) the last time they had sex with anon-regular 2003- partner, has increasedby 20% from 2002 2005) levels ProjectOutputs Intermediaryresults B y 2009, at least 250 initiatives with the 0 80 250 private sector have beenfunded. (CNCS 2006) Civil society has expandedits delivery of B y 2009, there are 500,000 clients reached n/a 445,000 500,000 prevention and care annually by all of the key HIV/AIDSrelated (CNCS 2006) per year services. activities delivered by civil society. In2009, at leastUS$ 7 millionper year are n/a us4.5 us $7 channeledto communities and implementing million million agencies (CNCS 2006) per year Capacity developedin By 2009, at least 500 national leaders and n/a n/a 500 civil society, amongst 5000 provincial leaders trainedhnvolved in Study to be national communities, private HIV/AIDS campaign. commissioned leaders sector and leaders, to by CNCS trained implement HIV/AIDS- relatedprograms 5,000 provincial leaders trained Government at all levels By 2009, 75% of annual action plan 11 15 ministries 18 (HIV/AIDS activities) in each participatory ministries (CNCS Ministry,is funded andimplemented. (CNCS 2006) 2005) By 2009, 75% of all civil servants have been n/a Study to be 75% reachedby HIV/AIDS IEC. commissioned byUTRESP 9 Project outputs Intermediary results I Baseline Progress I Target HIV/AIDS related prevention and care services inthe health coverage. 2002) sector havebeen scaled upandstrengthened By 2009, ensure that 100% of all blood for transhsion is screened. 2003- 2005) By 2009, 100 % of secondary and tertiary n/a 100% 100% health facilities have the capacity to diagnose and test STIs By 2009, all public institutions and agencies, n/a 15,114,000 30,000,000 will distribute condoms on a regular basis, with (CNCS, 30 million condoms distributedannually." 2006) FunctioningM&E By 2009, CNCS can report annually on at least n/a 55% 75% systemthat supports 75% of the indictors in its national HIV M&E (CNCS government's ability to Framework and that a report is disseminated to 2006 & managethe epidemic and national leaders UNGASS deliver the rightservices 2003- 2005) 1The purpose ofthis indicatorwas to track blood safety and ensure the it would remain 100% screened for HIV throughout the projectperiod 10 Annex 2 SCHEDULE 1 Withdrawalof the Proceedsof the Grant A. General 1. The table below sets forth the Categories of itemsto be financed out of the proceedsof the Grant, the allocation of the amounts o f the Grant to each Category and the percentage o f expenditures for items so to be financed in eachCategory: Amount of Grant % of Allocated Expenditures to Category (Expressed in SDR) beFinanced (1) Works: 100% (a) PartsA, B, C and Eo fthe Project 0 (b) PartDofthe Project 150,000 (2) Goods (including ARVs) equipment 100% and vehicles: (a) PartsA, B, C andE of the Project 500,000 (b) PartDofthe Project 6,800,000 (3) Consultant Services andAudits 100% (a) PartsA, B, C andEo fthe Project 1,500,000 (b) Part Dofthe Project 1,670,000 (4) Training: 100% (a) PartsA, B, C andE ofthe Project 680,000 (b) Part D ofthe Project 2,400,000 (5) Sub-Grants for Subprojectsunder 8,750,000 100% of amounts Parts A and C ofthe Project disbursed (6) Operating Costs: 100% (a) PartsA, B, C andE ofthe Project 500,000 (b) PartDofthe Project 325,000 11 Amount o f Grant % o fExpenditures Allocated to Category (Expressed inSDR) beFinanced (7) Refundingof Project Preparation 74,000 Amount due Advance pursuant to Section 2.02 (b) of this Agreement (8) Unallocated: (a) Parts A, B, C and Eof the Project 3,700,000 (b) PartDofthe Project 255,000 (9) Works, Goods, Consultant Services, 14,296,000 58% for FY07 and Training and Operating Costs for suchpercentageas Parts A, B, C and E; and Sub-Grants for the Association Subprojectsunder PartsA and C may determine for of the Project eachFiscal Year thereafter Total 41,600,000 12