Document of The World Bank FOR OFFICIAL USE ONLY Report No: 78487-IN RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF BIHAR KOSI FLOOD RECOVERY PROJECT CREDIT NUMBER 4802-IN {SEPTEMBER 9, 2010} TO THE REPUBLIC OF INDIA JUNE 28, 2013 Sustainable Development Department Disaster Management and Climate Change Unit South Asia 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 BAPEPS Bihar Aapada Punarwas Evam Punarnirman Society BKFRP Bihar Kosi Flood Recovery Project BRLP Bihar Rural Livelihood Project NRLP National Rural Livelihood Project DEM Digital Elevation Model DPR Detail Project Report EHS Environment Health and Sanitation ESMF Environment and Social Management Framework GoI Government of India GoB Government of Bihar HRM Hazard Risk Mapping LiDAR Light Detection and Ranging NGO Non Government Organisation ODRC Owner Driven Reconstruction Collaborative PMU Project Management Unit RTDAS Real Time Data Acquisition System SHG Self Help Group Regional Vice President: Isabel M Guerrero Country Director: Onno Ruhl Sector Manager: Bernice K. Van Bronkhorst Task Team Leader: Deepak Singh 2 INDIA BIHAR KOSI FLOOD RECOVERY PROJECT CONTENTS Page A. SUMMARY ................................................................................................................ 4 B. PROJECT STATUS.................................................................................................... 4 C. PROPOSED CHANGES ............................................................................................ 5 D. APPRAISAL SUMMARY ......................................................................................... 9 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ....................................... 13 3 INDIA: BIHAR KOSI FLOOD RECOVERY PROJECT RESTRUCTING PAPER A. SUMMARY 1. The proposed restructuring of the Bihar Kosi Flood Recovery Project (BKFRP) aims to reprioritize investments in the State of Bihar and strengthen the capacity of state institutions in implementing the project. The proposed changes will modify the activities in specific components of the project per the needs of the State. In particular, the proposed changes include: i) revising allocation for Component 1: Owner Driven Housing Reconstruction, to increase financing for construction of toilets; ii) expanding scope of Component 3: Strengthening and Flood Management Capacity, to augment scope of pilots work for embankment strengthening works using alternative construction materials; iii) Redesign/curtail Component 4: Livelihood Support and Enhancement, to include the balance of activities, from April 1, 2013 onwards, into another ongoing operation in the State of Bihar that is similar to BKFRP activities; (iv) redesign Component 5: Improving Emergency Response Capacity, to reallocate the contingency funding allocation into other project components and introduce a zero-component for emergency response financing. The proposed changes will also result in reallocation of project proceeds among the components, change in project closing date and results framework. B. PROJECT STATUS 2. As of May 30, 2013, out of the total allocated IDA credit of $220 million, about $41.1 million (including Designated Account Advance of USD 20 million) has been disbursed. Since the project became effective in March 2011, the implementation has been slow and current Implementation Progress rating remains ‘Unsatisfactory’ while progress in achieving the Development Objectives is rated as ‘Moderately Unsatisfactory’. Main reason for the slow progress has been low level of implementation readiness of the project. The project was prepared as an Emergency Recovery Loan that provided little time to build implementation capacity in the state institutions. In addition, emergency nature of the project implied that survey, design, documentation and tendering of activities started only after the project was approved. 3. In recent months, considerable progress has been made in all components of the project. Staffing issues within BAPEPS and the Implementing Agencies are being resolved, as are challenges related to financial management. Updates on each investment component are listed below:  Component 1: Owner Driven Housing Reconstruction: Out of the proposed 100,000 houses to be reconstructed, the beneficiary list for 65,000 has been finalized and the process of allocation of funds to beneficiaries has been initiated. Currently, over 52,000 beneficiaries have been given first installment of housing assistance and over 11,000 homes have been completed. 4  Component 2: Reconstruction of Roads and Bridges: All 20 contracts for roads and 48 contracts for the bridges, valued at about US$68 million, have been awarded and works are underway.  Component 3: Strengthening Flood Management Capacity: One embankment contract valued at US$4 million has been awarded and the construction work has begun. In addition, three contracts for flood channels and three technical studies on flood management totaling US$5 million are in the advanced stage of tendering.  Component 4: Livelihood Restoration and Enhancement: This component has substantially mobilized community institutions and their capitalization. The project has enabled the community institutions to leverage considerable credit from commercial banks. In conjunction, pilots of agriculture and livestock interventions have also been successfully implemented. C. PROPOSED CHANGES a) Results/indicators 4. The modified result indicators in accordance with the revised allocations and the component descriptions are included in Annex 1. b) Components 5. Component 1: Owner Driven Housing Reconstruction – The allocation for financing the construction of toilets under the original BKFRP was found to be inadequate. Following a beneficiary needs assessment, the allocation for the component has now been increased by US$10 million. In addition, the project earlier envisaged the involvement of Owner Driven Reconstruction Collaborative (ODRC) to support the housing reconstruction activities. However, the contract with ODRC could not be finalized. GoB is has now decided to deploy the support field staff in BAPEPS to support the implementation of the component. 6. Component 2: Reconstruction of Roads and Bridges - All 20 contracts for roads and 48 contracts for the bridges are awarded and under construction. There is no change in the allocation for this component. 7. Component 3: Strengthening Flood Management Capacities – The original project focused mainly on building technical capacities within the Water Resources Board through the implementation of technical studies and limited structural investments. The component will now include the following originally planned activities and additional pilot embankment strengthening works: Sl. No. Item Indicative cost (US$ in millions) Technical Studies 1. Procurement of DEM (LiDAR study), HRM 1.0 2. Design and development of Real time data Acquisition 2.0 System (RTDAS) 5 Sl. No. Item Indicative cost (US$ in millions) 3. Embankment Asset Management system (with community 1.0 mobilization) 4. Flood forecasting & EW system 0.5 5. Flood and sediment management 1.0 6. River behavior analysis 0.5 Structural Works 7. Strengthening the road at western embankment – 8km 4.5 8. Strengthening of Dhars 2.5 9. Strengthening of critical embankment reaches (km 78 to 84) 43.5 along with ancillary works (new addition) Total 56.5 8. The embankment strengthening works will be taken up on the left bank of the Kosi River, downstream of barrage from Km 78-84 and weak reaches in the embankment, along with other ancillary works. Component 4: Livelihood Support and Enhancement – The component, designed for US$30 million in activities, has made initial investments in the creation of self-help groups in the project area and building capacity among the support teams. In addition to this project component, there are two ongoing Bank supported operations working towards the same objective, including the Bihar Rural Livelihood Project (BRLP) and the National Rural Livelihood Project (NRLP). In order to simplify the implementation remaining planned activities under this component will be transferred to state-wide NRLP, effective April 01, 2013. The same activities will continue, but the results will be achieved under NRLP. Expenses made till March 31, 2013 have been estimated at about $8.50 million and the balance $21.50 million is re-allocated to other components under the Project. 9. Component 5: Improving Emergency Response Capacity will now been termed as Contingent Emergency Response – The allocation for the component is defined as ‘Zero’ and this component will be subject to procedures outlined hereafter. The US$20 million currently allocated to this component has been reallocated to other project components. Implementation of this component will be as follows 10. Following an adverse natural event that causes a major natural disaster, the GoB may request the Bank to re-allocate project funds to support response and reconstruction activities. This component would draw resources from the unallocated expenditure category and/or allow the GoB to request the Bank to re-categorize and reallocate financing from other project components to partially cover emergency response and recovery costs. This component could also be used to channel additional funds should they become available as a result of an emergency. 11. Disbursements would be made against a positive list of critical goods or the procurement of works, and consultant services required to support the immediate response and recovery needs. All expenditures under this component, should it be triggered, will be in accordance with paragraph 11 of OP 10.00 and will be appraised, 6 reviewed and found to be acceptable to the Bank before any disbursement is made. In accordance with paragraphs 11 and 12 of OP 10.00, this component would provide immediate, quick-disbursing support to finance goods (positive list agreed with the GoB), works, and services needed for response, mitigation, and recovery and reconstruction activities. Operating costs eligible for financing would include the incremental expenses incurred for early recovery efforts arising as a result of the impact of major natural disasters. The GoB will prepare a separate Operations Manual for this component, in agreement with the Bank. 12. Component 6: Project Management and Implementation Support – The component was originally designed for US$10 million. This component has been increased to US$15 million given the requirement to support BAPEPS and Implementing Agencies to build necessary capacity, for support towards expanded scope of works in housing reconstruction including toilets over an extended period of reconstruction in the form of project management support like deployment of Consultants, additional contractual staff, systems, office, equipment etc., to assist in implementation of the project and in the preparation of the proposed follow on investments. c) Financing 13. Project Cost - While overall project cost has not changed, the revised components cost are indicated in the table below: Project Costs (US$ million) Components/Activities Current Proposed Housing reconstruction 60 70 Roads and Bridges 70 70 Strengthening Flood management Capacity 30 56.5 Livelihood Support and Enhancement 30 8.5 Contingent Emergency Response 20 0 Project Management and Implementation Support 10 15 Additional due to exchange rate changes - 1.2 Total 220 223.2* * - exchange rate as on March 26, 2013 (date of restructuring request) - US$1.50013 = SDR 1 14. Financing Plan – Revised financing plan is as below and also included in the data sheet. Financing Plan (US$m) Source Local Foreign Total BORROWER/RECEIPENT 43.00 0.00 43.00 International Development 210.00 10.00 220.00 Association (IDA) Total 253.00 10.00 263.00 7 15. Reallocations – The reallocation of project proceeds is given in table below: Category of Expenditure Allocation % of Financing Current Revised Current Revised Current Revised Grants to Grants to 38,500,000 46,700,000 80% 80% Beneficiaries Beneficiaries under Part A under Part A of the Project of the Project Goods, Goods, 76,500,000 96,500,000 85% 85% works, works, services, services, technical technical assistance, assistance, training training and Operating and Operating Costs under Costs under Parts A, B, C Parts A, B, C and F of the and F of the Project Project Goods, Goods, 20,300,000 5,600,000 85% 85% works, works, services, services, technical technical assistance, assistance, training, training, Grants and Grants and Operating Operating Costs Costs under Part D under Part D of the Project of the Project Goods, works Emergency 13,500,000 0 100% 100% and Expenditures services under Part E under Part E of the Project of the Project Total 148,800,000 148,800,000 d) Closing date – The project is scheduled to close on the current project closing date of September 14, 2014. e) Implementation schedule – The revised estimated disbursement schedule is given in the table below: Estimated Disbursement Schedule (Bank FY/US$ m) FY 2011 2012 2013 2014 2015 Annual 20.0 6.8 14.3 140.0 38.9 Cumulative 20.0 26.8 41.1 181.1 220 8 D. APPRAISAL SUMMARY a) Economic and financial analysis 16. The proposed changes do not materially alter the economic and financial analysis carried out earlier for the Project. However, inclusion of embankment strengthening works requires minor modifications. The proposed inclusion of embankment strengthening activities was prospered as part of a follow on project and a detailed analysis was carried out. The follow on project is simultaneously under preparation and focuses mainly on flood management activities. A brief description of the analysis is included below. 17. To quantify the benefits of these investments, an analysis of the expected reduction in the costs of flooding has been undertaken using a well-proven methodology of damage assessment of historical flood events of certain intensity and size by frequency of occurrence (i.e. return period). Flood damages were modeled in a risk based fashion as a product of hazard and vulnerability, where D = H*V. Given the complex relationship between the hazard and vulnerability, the variables were constructed as probability distributions within the model. Existing data for the past 10 years was utilized to build and calibrate a model, which was then used to generate expected loss data over a 25-year horizon going forward. Damage estimates for different flood frequencies ranging from every year up to 1 in 100 years were calculated for pre-project and post-project scenarios, and the difference between these provides the expected benefit of reduced flooding due to project investments in flood control infrastructure. 18. Based on the information, cash flows of costs and benefits were projected over a 25-year period to estimate the Net Present Value (NPV) at a discount rate of 12 percent and the Economic Rate of Return (ERR) that has been calculated as 20.8 percent. 19. The reallocation of funds between project components does not materially alter the technical, social, and environmental issues or risk aspects of the project. b) Technical 20. The original project had received exception to Notification Requirement under OP 7.50 – Projects on International Waterways on July 19, 2010 from the Regional Vice President. The exception was approved for the structural interventions planned under Component C - Strengthening Flood Management Capacity under the original project that included strengthening and rehabilitation of existing sections of flood embankments along the Kosi River within Bihar. In the present restructuring, it is proposed to enhance those investments and pilot a critical section of the embankment strengthening using new materials. The proposed activities continue to be in line with the earlier exception. c) Financial Management 21. The project has faced financial management challenges especially under the housing component, due to large number of beneficiaries spread over 21 administrative units at the block level, co-financing with another GoI funded housing program and the 9 lack of clear directions, support and oversight from BAPEPS. This resulted in considerable weaknesses at the block level which include: (i) opening of multiple bank accounts, some in the name of BAPEPS and other in the name of the Block Development Officer; (ii) mixing up of funds/ beneficiaries between the two sources of funds (GoI/Bank) from which the housing component is co-financed; (iii) failure to prepare bank reconciliations and (iv) failure to account for returns/rejections from bank’s against electronic transfers to beneficiary accounts. Due to these factors the external auditors for the year 2011-12 were unable to provide an opinion on the financial statements for the year. The audit report for the year 2011-12 is now overdue for 9 months and reimbursements under the project have been discontinued. In order to address the situation, a firm of chartered accountants has been contracted by BAPEPS to carry out an accounting and reconciliation exercise and prepare the revised financial statements for the year 2011-12, based on which the external auditors are expected to complete the audit and issue the audit report. This exercise is now nearing completion based on this the external auditors will be in a position to provide the audit report by July 31, 2013. 22. In order to address the systemic weaknesses in financial management the following actions have been taken/ proposed by the project : (i) The scope of consultancy of the firm of chartered accountants includes financial year 2012-13, which will ensure that the accounts and audit for FY 2012-13 is not delayed; (ii) the government has deputed a serving finance officer to BAPEPS and the project has contracted dedicated accounts staff for the project at the district and block level, as against depending on the regular government staff which look after multiple projects and are liable to frequent transfer. This will ensure more direct control of BAPEPS over the block units; (iii) proposal to have dedicated project bank accounts using the core banking solution of commercial banks which will allow BAPEPS to have view rights and consequently better oversight over district and block level transactions in the bank accounts. Disbursements under the project have been discontinued since February 2013 (other than for the livelihood component) and requisite approval from RMFM and Director CTRLD has been obtained to proceed with restructuring despite the overdue audit report for FY 2011- 12. The project will be able to claim reimbursements, after an acceptable audit report for FY 2011-12 is submitted, which is expected by July 31, 2013. d) Implementation arrangements 23. The implementation arrangements largely remain unchanged for all the components except a minor change in implementation of housing reconstruction component. During the Project preparation, an NGO (Owner Driven Reconstruction Collaborative – ODRC) was identified to support implementation of the planned activities. However, due to irreconcilable differences between the Government of Bihar and the ODRC, the contract could not be concluded. As a result, the GoB decided to hire field staff consisting of social mobilizers, technical supervisors, and cluster level supervisors. The recruitment process is now substantially complete and staff is being deployed. To date, approximately 70 percent of staff has been put in place while deployment of balance 30 percent staff will be completed by September 2013. 10 e) Environment 24. The environmental safeguard policies, approach and environmental management tools developed for the original project will apply to the restructured project. While some changes/modifications have been proposed in certain components of the original project, potential adverse, irreversible or long term impacts are not envisaged. In fact, some proposed changes such as the expansion of housing reconstruction component to include construction of toilets, which was discussed during the preparatory stage of the project as well, will help in enhancing the positive results/benefits pertaining to the improvements in health and hygiene of the beneficiary household and the local community members. Provision of toilet construction would in specific enhance the personal and social dignity of the women members of the beneficiary family. Likewise, the scope of component on strengthening of existing embankments and improving flood management capacity now proposes to cover piloting of embankment strengthening works using new materials. This may eventually help in reducing some pressure on existing/conventional natural resources, at least in the long run if these pilots are successful. The curtailing of the livelihood support and enhancement component by including the balance activities in another on-going similar operation in the state of Bihar will not create any significant implications on the over-all environmental approach that was designed for the parent project. 25. In the initial stages of project preparation and implementation, there were several challenges. Among these, the most pertinent issue was related to the institutional capacity required for systematic planning, integration and execution of environmental management measures as part of the over-all engineering works. Other implementation challenges such as delays and gaps/deficiencies in survey, design and documentation (DPR preparation) considering the fact that the project was an emergency credit also affected the quality and timeliness of the safeguards work. With mobilization of the Environmental and Social Experts in BAPEPS, standardization brought-around in the DPR structure on ESMF aspects, integration of standard EHS conditions in the Bidding documents and some sensitization/training of the field staff, some improvements have been noted. However, gaps in implementation remain (including on issues of pre- construction activities, drainage design, worksite safety management and deployment of Environment and Safety Officers in the field and the institutional capacity still needs substantive strengthening - right up to the field level, including that of contractors. f) Social 26. Similar challenges as indicated above were encountered in case of preparation and implementation of social safeguards as well. Low institutional capacity, field level deficiencies, lack of exposure and understanding on social safeguards along with the fact that the project was an 'emergency credit' all have affected the quality and timeliness of the safeguards work. Initial rounds of orientation on safeguards, frequent supervision missions and mobilization of the Environmental and Social Experts in BAPEPS, have brought-around integration of social aspects into the DPRs through appropriate ESMF reports. Substantial improvement still needs to be undertaken both in preparation and implementation of social safeguards, particularly voluntary land donation, and documentation of community consultations and timely extension of entitlements. The 11 BAPEPS through the appointment of dedicated staff on safeguards and proposed periodic orientation program to the field staff on social and environment is working on resolving these issues. The Bank team will continue to provide required guidance and support for better implementation of social safeguards. The social safeguard policies and approach in place will apply to the restructured project. Preliminary assessments conducted for the proposed pilot embankment strengthening work indicate that there will be limited land issues and no negative social impacts are envisaged. 12 ANNEX 1: Results Framework and Monitoring Project Development Objective (PDO): The Project Development Objective is to support flood recovery as well as future oriented risk reduction efforts of the GoB through: (i) reconstruction of damaged houses and road infrastructure; (ii) strengthening the flood management capacity in Kosi Basin; (iii) enhancing livelihood opportunities of the affected people; and, (iv) improving the emergency response capacity for future disasters. Revised Project Development Objective: Project Development Objective remains unchanged. D=Dropped Cumulative Target Values** C=Continue Baseline Frequency Data Source/ Responsibility for PDO Level N= New Core Unit of Methodology Data Collection Results R=Revised Measure Indicators* YR 1 YR 2 YR 3 YR 4 YR 5 1. Improved Percentage 0 0 2 11 70 100 Quarterly MIS BAPEPS disaster of families resistant C with new houses to constructed affected houses and families in toilets project areas 2. Increased Percentage 0 0 0 0 60 100 Quarterly MIS BAPEPS communities C of villages access to having restored access to /new roads restored and bridges and new in the project roads/bridg areas es 3. Increased resilience of Percentage 0 0 0 0 50 100 Quarterly MIS BAPEPS Kosi basin R of embankme nt strengthene d 4. Increased Number of 0 2000 7500 11500 Quarterly MIS BRLP communities households access to R benefitted financial by the opportunities formation in the project of SHG areas. INTERMEDIATE RESULTS Revised Intermediate Result (Component One: Owner Driven Housing Reconstruction): Number of houses Quarterly MIS BAPEPS reconstructed C Number 0 0 11500 60000 100000 Number of toilets C Quarterly MIS BAPEPS constructed Number 0 0 0 60000 100000 Revised Intermediate Result (Component Two: Reconstruction of Roads and Bridges): Number of bridges Number Quarterly MIS BAPEPS constructed C 0 0 0 0 70 Kilometers of roads C Km Quarterly MIS BAPEPS reconstructed 0 0 0 100 248 Revised Intermediate Result (Component Three: Strengthening Flood Management Capacity): Kosi embankment C Km 0 0 0 8 16 Quarterly MIS BAPEPS strengthened Technical studies R Number Quarterly MIS BAPEPS finalized 0 0 0 0 4 Revised Intermediate Result (Component Four: Livelihood Restoration and Enhancement): Number of SHG R Quarterly MIS BRLP formed Numbers 2000 7500 11500 Number of village R Quarterly MIS BRLP level organization Numbers 45 250 750 formed 14