Document of The World Bank ReportNo. 17141 AM STAFF APPRAISAL REPORT ARMENIA AGRICULTURAL REFORM SUPPORT PROJECT December 12, 1997 Rural Development and Environment Sector Unit Europe and Central Asia Region CURRENCY EQUIVALENTS (as of December, 8, 1997) Currency Unit = Dram December 8,1997 1SUS= 500 Dram October 15,1996 1SUS= 420 Dram WEIGHTS AND MEASURES Metric System ARMENIA - FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AAA Armenian Agricultural Academy AAS Agricultural Academy of Science ADC Agribusiness Development Center ABSC Armenian Business Support Center ACBA Agricultural Cooperative Bank of Armenia ASC Agriculture Support Center AMD Armenian Dram AME Agricultural Marketing Enterprise ANM Armenian National Movement ARC Agricultural Research Council ARSP Agricultural Reform Support Project BAC Business Advisory Center CBA Central Bank of Armenia CIS Commonwealth of Independent States EU-FSP European Union - Food Security Program FSU Former Soviet Union GOA Government of Armenia IAS International Accounting Standards ICB International Competitive Bidding ICMA International City/Country Management Association IDA International Development Association IS International Shopping IFAD International Fund for Agricultural Development LIBOR London Interbank Offered Rate MOA Ministry of Agriculture Vice President: Johannes Linn Country Director: Judy O'Connor Sector Director: Kevin Cleaver Team Leader: Mark Lundell MOEP Ministry of Environmental Protection MOFE Ministry of Finance and Economy NCB National Competitive Bidding NMP Net Material Product OJSC Open-Joint Stock Companies PFI Participating Financial Institution PIU Project Implementation Unit PHRD Participation and Human Resources Development PPF Project Preparation Facility RU Regional Unions SCA State Cadastral Administration SME Small and Medium Enterprises USAID United States Agency for International Development USDA United States Department of Agriculture VAT Value Added Tax I ii ARMENIA AGRICULTURAL REFORM SUPPORT PROJECT CONTENTS CREDIT AND PROJECT SUMMARY ........................................................... iii CHAPTER 1. BACKGROUND .....................................................1I A. Introduction ......................................................I B. The Policy Agenda .......................................................2 C. Agricultural Sector ......................................................5 D. Constraints to IncreasedAgricultural Productivity ....................................................... 7 E. Bank's Experience and Strategy ..................................................... 10 CHAPTER 2. THE PROJECT ...................................................... 13 A. Project Origin and Formulation ..................................................... 13 B. Project Objectives and Description ...................................................... 13 C. Cost Estimates ..................................................... 17 D. Financing ..................................................... 17 E. Procurement ..................................................... 18 F. Disbursement ..................................................... 20 CHAPTER 3. PROJECT IMPLEMENTATION ..................................................... 22 A. Organization and Management ..................................................... 22 B. Accounts andAudit ..................................................... 27 C. The Reporting and Evaluation ..................................................... 28 CHAPTER 4. BENEFITS, RISKS, AND ENVIRONMENTAL IMPACT . ..................................... 30 A. Benefits ...................................................... 30 B. Risks ..................................................... 31 C. Economic Analysis ...................................................... 32 D. Sustainability ...................................................... 34 E. Environmental Impact ..................................................... 36 F. Poverty ..................................................... 36 CHAPTER 5. AGREEMENTS REACHED AND RECOMMENDATION ................................... 37 A. Conditions ofAppraisal ..................................................... 37 B. Conditions for Negotiations ..................................................... 37 C. Agreements to be Reached During Negotiations ...................................................... 38 D. Recommendation ...................................................... 38 This report is based on the findings of pre-appraisal missions (February and June 1997). Mission members included: M. Lundell (Mission Leader), S. Mitrovic, J. Holl, B. Klose, M. Sahatdjian, L. Zuidema. The report was finalized on the basis of an appraisal mission (October 1997). -iii- ARMENIA AGRICULTURAL REFORM SUPPORT PROJECT Credit and Project Summary Borrower: Republic of Armenia Implementing Agency: Ministry of Agriculture Beneficiaries: Private farmers, agro-industrial enterprises, participating financial institutions, land owners, and agricultural institutions Amount: SDR 10.7 million (US $14.5 million equivalent) Terms: 35 years maturity, including a 10 year grace period, on standard IDA terms Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing, less any waiver Onlending Terms: Participating Financial Institutions (PFIs) would have the option of borrowing (and lending) project funds in either dollars or Drains. The period of each loan to the PFI would be 10-15 years. Dollar denominated borrowing by PFIs would be at a floating LIBOR-based interest rate, to be adjusted semi-annually, plus a spread of up to 1.5 percentage points. Interest rates on Dram denominated loans would be fixed on the basis of the average weighted interest rate for the previous 3 months, of the 30 day funds auctioned under Central Bank of Armenia's (CBA's) Credit Auction. Interest rates on Dram loans would be adjusted quarterly. PFIs would repay interest semi-annually on both Dram and dollar based loans, with the first payment after six months, and the principle would be paid at the end of the loan period. PFIs would be required to on-lend to private enterprises in the rural sector for sub-loans with term-to-maturities of up to five years for fixed investments and working capital. Interest rates charged to enterprises would be market determined. Financing Plan: National Foreign Iolal --------------US $ million---------------- IDA 5.177 9.323 14.500 Government of Armenia 5.315 5.315 TOTAL PROJECT COSTS 10.492 9.323 19.815 Cofinancing: The UK Know How Fund and US Agency for International Development are finalizing technical assistance commitments. Project Objectives: The overall objective of the Agricultural Reform Support Project is to increase agricultural productivity in Armenia by supporting the development of private sector farming, agro-processing, and strengthening of agricultural institutions and services. The intermediate goals of the project are to develop an agricultural credit -iv- system and target the needs of small farmers in agricultural research, extension, and provision of market information. Project Description: The project consists of three components designed to accomplish the following: (a) provide loans for working capital and investments to small, rural farms and businesses; (b) provide agribusiness training and technical assistance in project finance to private agricultural processing and marketing enterprises to assist them in post-privatization restructuring; and (c) initiate the restructuring of public services in the agricultural sector by focusing on research and extension involving small farmers. Project Benefits: The primary beneficiaries of this project are private farmers and agro-processing enterprises. The line of credit, to be used primarily by small and medium-sized farmers, is expected to result in productivity gains by allowing them to increase farm input use and yields, upgrade small-scale storage and processing technology, and improve marketing capabilities. Training in agribusiness is designed to facilitate the flow of loans from commercial banks (using the Enterprise Development project line of credit as well as other sources) to the agribusiness sector. The restructuring of agricultural institutions and services would allow them to provide a wider coverage of the country with important information regarding sustainable small-scale farming techniques, availability of inputs, market prices and opportunities. Environniental The project has been classified as category "B" in the Bank's environmental rating. Aspects: Investments financed under the line of credit will likely promote the use of agro- chemicals and fertilizers, but the improvement of extension services will promote a focus on sustainable agricultural practices. PFIs will work with the Agricultural Support Centers to monitor the proper use of ago-chemicals and fertilizers in conformity with Armenian laws. The remaining components of the project are not expected to have a detrimental impact on the environment. Project Risks: Project related risks include the following: (a) resurgence of macro-economic instability that could deter enterprises from borrowing and commercial banks from lending; (b) participating financial institution's failure to aggressively promote the project's line of credit because of inexperience with investment lending; and (c) lack of sufficient inclusion of small farmers' interests and participation in the setting of priorities for the restructured agricultural research, extension, and education institutions. In the event of a serious regression in the macro-economic situation, consideration would need to be given to limiting the on-lending to farmers in foreign currency since the foreign exchange risk would likely increase to unsustainable levels. The implementation risks associated with the credit to farmers component would be mitigated through the provision of technical assistance and training to PFIs. Economic Rate Of Given the lack of significant distortions between local prices and border prices, the Return: economic rates of return would be in line with the financial rates: these are measurable only for the credit line component, where lending at market rates will implicitly require that borrowers' returns are above 15% in real terms. Estimated Closing December 31, 2002 Dat.: Poverty Category The project is not explicitly focused on poverty alleviation. It is focused on the development of the rural finance system and the rekindling of demand from agricultural processing enterprises for primary agricultural produce. Therefore, it has strong linkages to a large number of small-scale private farmers. As such, it would help increase poor farmers access to formal credit. The agricultural institutional strengthening component would also improve agricultural practices and farmers' abilities to borrow in the medium term. Thus, the project will have an indirect, but substantial impact on poverty reduction. Project ID: AM-PE-35806 Map: 28874 Project Cost Summary (US $ million) National Foreign Total % Foreign % of Exchange Cost Credit to Farmers 2.000 5.500 7.500 73% 40.4% Agribusiness Development Center 0.753 0.475 1.228 39% 6.6% Agricultural Institutions 5.757 2.817 8.574 33% 46.1% Project Implementation Unit* 1.099 0.184 1.283 14% 6.9% Total Base Cost 9.609 8.976 18.585 48% 100.0% Contingencies** 0.883 0.347 1.230 28% 6.9% Total Project Cost 10.492 9.323 19.815 47% 106.9% *Includes US $0.332 million of PPF for preparation of former title registration component which has been made a separate project. **Contingenci^s are calculated on Base Cost less the amount of the Credit to Farmers component and the PPF. Disbursements Projections (US $ millions) FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 Annual 3.536 5.768 4.035 3.483 1.762 Cumulative 3.536 9.305 13.340 16.823 18.585 Cumulative Contingencies 0.234 0.616 0.883 1.113 1.230 Grand Total - Cumulative 3.771 9.920 14.223 17.937 19.815 CHAPTER 1 BACKGROUND A. Introduction 1.1 Armenia covers an area of 29,800 km 2 and shares borders with Georgia, Turkey, Iran and Azerbaijan. Altitudes vary from 400 m to 4,000 m above sea level. Two-thirds of the total land area is covered by high plateaux and mountains, and most of Armenia is at an altitude of 1,000 m or above. In 1997 the total population is estimated at 3.68 million, at a population density of about 123 per km2. Population density per km2 of arable and grazing land is roughly double this figure. About 69% of the population is concentrated in the urban areas. Yerevan (the capital city) alone has 1.4 million inhabitants or about 38% of the total population. Administratively, the country is divided into II marzes, including Yerevan. The smallest administrative unit is the village, of which there are some 930. 1.2 Armenia became an independent country in May 1991 following the disintegration of the Former Soviet Union (FSU). It is now a member of the Commonwealth of Independent States (CIS). Since independence, the Government of Armenia (GOA) has been drawn primarily from the Armenian National Movement (ANM) party. The ANM has pursued the objectives of consolidating national independence and promoting market reform. A very high degree of integration into the FSU economy induced economic collapse in Armenia when the inter-FSU trade, payments and financial system broke down. More fundamentally, the elimination of non- market pricing in trade between FSU states imposed a severe terms of trade shock on Armenia, particularly due to the sharp rise in energy import prices. This exposed the lack of comparative advantage for significant parts of Armenia's productive base. Facing these difficulties, the GOA has shown a strong commitment to a re-orientation of the role of government in the country's economy. The adoption of the new national constitution has initiated a thorough restructuring of government agencies. Furthermore, the implementation of a comprehensive stabilization and structural reform program since early 1994 has reinforced the coordination between ministries in priority setting and policy formulation. 1.3 Progress on re-orienting government in the transition to the market economy has accelerated with an easing of the regional political situation. Initially, the conflict over Nagorno- Karabakh led to a trade and transport blockade by Azerbaijan (traditionally Armenia's principal transit route for oil, gas, and other products) and the closure of the Turkish border. However, there have been several positive developments in Armenia's relations with its neighbors. A formal cease-fire with Azerbaijan was singed in 1994, and there have been signs of a rapprochement between Armenia and Turkey. These developments offer a real prospect of lifting the blockade on Armenia in the near future. In addition, rapidly-growing trade with Iran and greater stability in Georgia have eased Armenia's isolation. Progress in implementing a stabilization program has been impressive since mid-1994. The fiscal deficit declined from 48.2% of GDP in 1993 to 8.8 in 1996. The nominal exchange rate has been broadly stable since the Spring of 1994. After an estimated 60% decline in GDP in 1991-93, growth of GDP has been 6% annually in 1994-96. The current account deficit (excluding official transfers) declined to 26.5% of GDP in 1996 from 35.5% in 1994. This has been accompanied by an accumulation of foreign exchange reserves equivalent to 2.25 months of imports (three times the 1994 level). 2 Background 1.4 However, these achievements in GDP growth and external adjustment remain fragile, and poverty has become pervasive (particularly in urban areas, where people have limited access to agricultural land). Average monthly wages were about US $36 in December 1996 (in the budgetary sector they were only about US $12) and average old age pensions about US $7. Although wages are often supplemented by informal sector income, social assistance, remittances from abroad, and humanitarian aid, survey data reveal consumption levels barely above subsistence levels for large parts of the population. While recorded unemployment is only 5% of the labor force, a further 15% to 30% are estimated to be on involuntary unpaid leave or reduced pay for shortened working hours. B. The Policy Agenda 1.5 Despite the initial success following introduction of the reform programs, the new market economy is still in a transition stage - tax collection remains haphazard, and the productive sector has not fully been adjusted to new economic signals. For the GOA to achieve complete transition and recovery in the food and agricultural sector, the following major measures are required: a) the timely development of a working rural financial system to support privatized agriculture, farmers, and processors; b) the successful restructuring of privatized agro-processing enterprises and rekindling of demand for processed agricultural products; c) the implementation of a registration system for transactions in land and other real estate which is capable of standardizing determination of collateral for working capital and investment loans; and, d) the strengthening of agricultural support services which can both transfer information on agricultural practices and farm management, and deliver commercially usable agricultural research results. These elements are currently being addressed by the GOA and are briefly described below. 1.6 - Privatization of Enterprises. The privatization process in Armenia began in March 1995, with a goal of privatizing 700 medium/ large enterprises by the end of 1995. Many pieces of supporting legislation have also been enacted: in July, 1994 a foreign investment law was passed, and in May, 1995 a bankruptcy and collateral law was approved. The primary methods of privatization are vouchers, sales via auctions through cash and vouchers, and tenders. The management and employees of most enterprises either were entitled to 20% of enterprise shares for free or had the option of buying 20% of enterprise shares through closed subscription. The rest of the shares were offered through open subscription. As of April, 1997, 609 medium/large enterprises had been privatized, with the number of completely privatized agro-processing enterprises totaling 163 (19 wine factories, 18 canning factories, 10 mineral water enterprises, 34 milk processing plants, 17 large bakeries, and 65 other sub-branch enterprises). Of these 163 enterprises, 134 became OJSCs, 23 are closed joint stock companies, 5 enterprises were sold at auction, and 1 was sold through international tender. Only 6 of these privatized agro-processing enterprises had received foreign investments by mid-1997. The remaining 155 agro-industrial enterprises are in the pipeline to be privatized by June 1998. 1.7 The main obstacles to increased foreign investment in agro-industry. The export orientation of Armenian agro-processing is toward wine, fruit and vegetable production, but the current blockade restricts the flow of the products to the FSU and other countries by truck and by Chapter 1 3 railroad. Some high-value products are exported by air, but this is not feasible for most processed agricultural products. On the other hand the demand on domestic markets for such products is increasingly strong, as evidenced by the extensive presence of imported processed products. Large-scale processing of fruit and vegetables could resume to serve an expanding and accessible domestic market, but it is evidently a high risk in the current economic situation. Thus, the tension in the region stemming from the dispute between Armenia and Azerbaijan over Nagorno-Karabakh and the resulting transport difficulties and high costs are the main obstacles for potential investors in the region in general, and in Armenia in particular. Looking toward future export market growth, however, the GOA joined the International Standard Association (ISO) in mid-1994. At present, the ISO 9000 regulations packaging system is being gradually implemented in Armenia. 1.8 Land Privatization. Before privatization, the cultivated agricultural land areas within the collective and state farms of the Republic of Armenia consisted of about 46% of the total area (2,974,000 hectares), of which arable land covered 495,000 hectares, perennials covered 84,000 hectares, meadows 138,000 hectares, pastures 666,000 hectares, and collective property horticultural unions covered 6,000 hectares. In January, 1991, Armenia enacted the "Law on the peasant cooperative farms," according to which three forms of ownership were established: property of citizens, collective property, and state property. Arable land was distributed as private property to more than 320,000 farmers on free of charge basis. The non- land assets of the dissolved collective and state farms were privatized in the same way (livestock, equipment, specialized units, etc.). Although farmers were allocated 80% of the arable land, 20% remained under the community as a reserve fund (and pasture land was held in state ownership). The land in this fund can be leased by the community council to individuals for agricultural purposes. 1.9 The privatized land has been distributed by the committees that were established in the communities according to the following principles: families of up to three persons were allocated one land parcel. Families consisting of four to six persons received two land parcels, families with seven or more members got three land parcels. Thus, land was given to the family and the head of the family was registered as an owner (farmer) and received a temporary certificate of a right to ownership by the privatization committee. Since in each of the communities the privatized areas and the number of the land parcels are different, the sizes of the lands received by the landowners are also different (0.3 - 15 hectares). The land surveys carried out by the privatization committees were not often done properly. Thus, the job of future precise surveys, mapping, and parcel identification, and evaluation and preparation of property deeds (state acts) was delegated to the "Armgiprozem" Institute (operating under the Ministry of Agriculture). To date, 85,000 state acts have been prepared, while another 250,000 await preparation and issue to land owners. The lack of funds has slowed down the work and restricted the geographical coverage of the survey mainly to the agricultural areas near Yerevan . 1.10 Establishment of a Land Registration and Land Cadaster System. In December 27, 1995, the National Assembly passed the "Law on the Real Property," in which land is defined as real property and owners are given well clarified rights and obligations to this property. In July 1997, the GOA established a property registration system by a decree on the "Establishment of the State Cadastral System." According to this decree, a unified state cadastral service for property registration was established as the State Cadastral Administration (SCA) under the Ministry of Justice. The main tasks of the SCA are to: (i) register the specific attributes of individual pieces of land and other real estate - i.e., location and sizes, property owners and their legal status, rights and obligations such as leases, mortgages, condominium, and other 4 Background indemnities, and property sales; and, (ii) accumulate and distribute data on these attributes as well as those regarding assessed values of real property and adjudicated boundary disputes. The information collected in the cadastral system will be made available to taxation inspection authorities, realty enterprises or agents, and banks and other interested organizations or individuals. 1.11 According to an earlier GOA decree (in March, 1996) on the property registration system, the draft preparation work on property registration and cadastral issues and its submission to the GOA was delegated to the Ministries of Urban Development, Agriculture, Finance and Economy, Justice, and the Yerevan City Municipality. A commission was formed from the representatives of these bodies. It has been given the task of developing a draft law on Real Property Registration. This law should give legal force to the SCA's specific activities and establish the legal principles governing registration and government accountability for the accuracy of the information in the registration system. 1.12 The registration system being set up by the SCA will have its units in each of the marzes (provinces) and be responsible not only for the organization of surveying and mapping, collection of inforrnation, issuing of titles, and answering infornation requests through title reports, but also for the land dispute adjudication and settling of land problems. They are also to cooperate with different bodies of justice, such as the notary service offices, to document changes connected with the legal status of property, such as the provision of easement rights' and settlement of disputes occurring over their use. In cases when the local registry offices of the SCA will not be able to resolve the disputes in the field, the case will be sent to the court to be addressed through the justice system. 1.13 Restructuring the Banking Sector. The monetary crisis and currency depreciation prevailing in Armenia in 1993-94 eroded the real values of nominal claims, including the bank's deposits and loan portfolios, as well as confidence in the currency and the banking system. In order to restore confidence in the banking sector several measures were introduced by the GOA under an IMF financial restructuring program. A key feature of the program was the establishment of the independence of the Central Bank of Armenia (CBA) to conduct and manage monetary policy. This was followed by a new Banking Law that gives the CBA's supervisors sufficient authority to enforce prudential rules, regulations, and sanctions, and the power to regulate financial markets, and to liquidate banks. These expanded powers imply a wider role for the CBA and have strengthened the legal regulatory framework for banking in general (Annex A presents the current situation with several banks). 1.14 The GOA has also promoted the orderly consolidation and merger of small private commercial banks that do not meet the minimum capital requirements. Under the IMF program, technical assistance was provided to the CBA's banking supervision department to help strengthen its supervisory and regulatory capabilities and to implement these measures. As a result of this program, the conditions for lending have improved significantly: i) average monthly inflation for the period January through September 1997 was down to 1.5%; ii) thirty one banks have been certified under the new CBA prudential regulations; iii) at least five banks have completed International Accounting Standards (IAS) audits and therefore become potential candidates for on-lending credit lines; and iv) significant progress in the privatization of medium and large scale enterprises (para 1.6) has improved the market conditions for lending. 1.15 Rural Finance. The credit resources flowing to the rural sector are well below the levels which current estimated credit worthiness of the sector would justify. This credit is Chapter1 5 necessary for farms to be able to restructure their output profile and make small investments in on-farm processing, and to non-farmers for the expansion of storage, marketing, and input supply. Recent studies show that over 25% of the private farmers could service loans of $500 per annum or more, a total of about $39 million annually. The main obstacles to such lending by commercial banks are the following: high costs of obtaining knowledge on potential borrowers and developing a network of local outlets for lending, high real interest rates charged by commercial banks, and lack of adequate registration of land and other real estate to support expansion of collateral-based lending. To address this situation, the GOA promoted the formation of the Agricultural Cooperative Bank of Armenia (ACBA). 1.16 ACBA was established in 1993 by the Ministry of Finance and Economy, the Farners Union, and EU-TACIS, allocating the counterpart funds of US $2 million equivalent, obtained from sales of flour for bread. From the start the bank has got technical assistance from EU-TACIS through Credit Agricole (France). The actual lending operation started in May 1996, and the bank is working in three defined regions: Ararat, Shirak, and Armavir. ACBA is owned by three regional unions (RUs) which are limited liability companies. The RUs operate through village associations (VAs) of natural (physical) persons. The VAs are non-profit, mutual associations which are not themselves permitted to own a bank. This three-level structure is based partly on the traditional cooperative organization model practiced in many countries, and in part on the legal requirements of Armenian legislation. Currently the main borrowers of ACBA are the middle income farmers. During April-December 1996 ACBA lent 1553 farmers an average amount of equivalent US $520. The maximum loan size was US $600 per farmer, and the total amount disbursed US $800,000. In 1997 it increased the maximum loan size to US $1000. The maximum loan period is 12 months and interest rate is 3% per month in local currency. Farmers borrow and repay in both dollars and in local currency (for example, the Shirak marz branch lends 90% in dollars since many farmers produce for export to Georgia). The financing is mainly for farm inputs, like seeds, fertilizers and agro-chemicals. C. Agricultural Sector 1.17 During the Soviet regime, the agricultural sector accounted for 18% of (NMP) compared with 56% for the industrial sector, and most of the country's food requirements were imported from the other Republics. Following the collapse of the FSU and the ensuing blockade, Armenia's economy began progressively to deteriorate, although the agriculture sector began to pick up again in 1993. Agriculture's share of NMP increased substantially, partly because of the decline in the other sectors but also thanks to policy reforms reversing the agricultural sectors' decline. With its limited resource base, Armenia has been specializing in high value horticultural crops such as grapes, apricots, apples, tomatoes, and a variety of other fruits and vegetables largely under irrigation and closely linked to the processing industry. The privatization of land brought the emergence of 320,000 small holders and changed, together with the blockade, the entire picture in the agricultural sector. 1.18 The main reason for the change in cropping pattern is the need for farmers to secure food self-sufficiency after the collapse of the FSU, the blockade, and the war in Karabakh. In addition, the collapse of the downstream processing sectors and the upstream suppliers (typical of most of the CIS republics) has caused a major decline in production, a loss of soil fertility and a crisis in the livestock sector. As in the past, the country is a net importer of food - grains, meat and dairy products. Surpluses remain in fruits and vegetables. Armenia used to enhance its food self-sufficiency by producing food from imported base products, such as feed. During the 6 Background blockade, the domestic food supply has dropped and food consumption declined. Armenia thus faces the following constraints in the agricultural sector: (i) a deteriorating food security; (ii) production decline due to inadequate irrigation, shortage of farm inputs (including farm mechanization), and lack of credit and adequate extension services; and, (iii) limited outlets for produce due to lack of packaging materials and spare parts in the processing sector, and bottlenecks in transport and storage. 1.19 Agro-processing and marketing. The agroprocessing industry in Armenia is based on cultivation, processing, marketing, and cross-border trade assumptions which are no longer valid. Processing infrastructure is underutilized, old and inefficient. Management has not yet developed commercial attitudes, and financially, the enterprises are undercapitalized and short of working capital. The GOA has decided to privatize the enterprises and offer them access to economy-wide credit lines. 1.20 Market Demand for Agricultural Products. At present, the most serious single agricultural marketing constraint is the blockade, which limits trade in both fresh and processed products. Other important constraints are the reduced purchasing power of the urban consumer and the inefficiency of the processing industry. While Armenia has the potential to produce sufficient horticultural crops for both the domestic and export markets - as fresh or processed products - the constraints mentioned above will likely be overcome by focusing on meeting local market demand first. Once the blockade is lifted and the other constraints are addressed, export markets should be available in neighboring and Middle Eastern countries. 1.21 Private Farming. Probably the most significant development in the sector since independence has been the emergence of small private farms as the main producers of food and agricultural products. The two surveys of small-scale privatization farms, conducted in different districts of Armenia, as a preparation activity for this project, show that on average, farm households have a land holding of 1.28 hectares of which 74% is arable, 13% is under perennials (orchards and vineyards), and 13 % is under hay meadows and pasture. The average family farm employs 2-3 members of the immediate family, mostly on a part-time basis. All farms in the survey produced crops, with a diverse crop mix, and 71% of the farmers had livestock. On average farm households consumed 60-70% of their produce and sold the balance, making them more than subsistence farmers. 1.22 About 75% of farms in the survey indicated that they received income from sales of agricultural produce. Among these 75%, average gross revenues from sales were about 360,000 Dram (US $900) per annum, and average net revenue was about 185,000 Dram (US $465), before payments for family labor. Sales revenues from crops and livestock are about 70% and 30%, respectively. Farm households in the survey were found to derive a substantial proportion of their income from non-farm sources, with 51% of households indicating that the farm provided less than 50% of the household income. A further 18% of households derived between 50% and 75% of total household income from farming. Relative to the equity base and the potential revenue stream, both input and output levels were low, reflecting constraints in accessing high quality inputs, credit, and information on current technologies. The main sources for funding farm operations in 1995 were retained eamings and loans from relatives (99% of respondents). Less than 1% of the respondents reported commercial borrowing. Chapter 1 7 D. Constraints to Increased Agricultural Productivity 1.23 Credit constraints in Agro-Processing Enterprises and Marketing. As a preparatory activity for this project, a team of consultants have examined sub-groups of agro-processing enterprises to identify their credit demand and potential eligibility to participate in borrowing under the IDA Enterprise Development Project (EDP) which became effective in 1997. The main credit constraints for agro-processing enterprises at present are the blockade of the country, virtual absence of medium and long-term loans, and very high short-term interest rates (as high as 40-60% per annum after inflation). According to the investment proposals, the demand for credit is high, due to the need for fixed investments (especially for quality-control modernization and improvement of packaging), and working capital. In addition, financing is needed by enterprises supplying farm inputs, such as fertilizers, agro-chemicals, spare parts and veterinarian medicine. Demand for investment and working capital has been estimated as follows for the next five years (1998-2002): Fruit and vegetables processing US $15 million Milk processing US $5 million Meat processing US $3.5 million Input supply US $1.5 million Working capital US $10 million 1.24 Capacity of the Commercial Banking System. A study of four commercial banks and one cooperative bank in Armenia was carried out during project preparation to assess their potential as participants for on-lending the credit portion of the project. The constraints to expanded bank lending to agricultural sector are as follows: i) lack of clear legal protections for creditors in the execution of judgments against defaulters, which limits the range of assets which borrowers can offer and banks will accept as collateral; this limits borrowers' capacity to obtain debt and is particularly evident in the case of residential real estate from which residents effectively cannot be evicted, even after due process of law; ii) rural land titles which are issued in the name of a family and not of a particular individual; iii) very weak real estate markets with high price uncertainty that compel banks to require very high collateral coverage ratios (collateral worth three to four times the amount of the loan); iv) high yields to trade businesses which excludes lower yielding agricultural and industrial borrowers from the very weak credit market; v) centralized management procedures in at least some of the former state banks which limit the ability of branch managers to mobilize deposits and make loans under their own authority. Rural Credit 1.25 Backgrround. During the Soviet period, the main supplier of credit to agriculture was the Agrobank, which had over 30 branches. However, the Agrobank was geared to channeling public funds to state enterprises and clearing payments between them, rather than carrying out retail banking operations. Following the breakdown of the FSU's banking system, the rural population lost access to institutional financial services. Over the past three years, there has been virtually no institutional credit available to large farms, nor to individual farmers. Credit to farms from the agro-processing sub-sector and marketing and input distribution 8 Background enterprises was also reduced, since they were also facing credit shortages. Finally, self-financing was also reduced, since price liberalization generated strong upward movement in real farm input prices, and demand fell because of overall reduction of national income. The resulting severe cost-price squeeze on farm profits has reduced utilization of inputs, mainly fertilizers and chemicals, and caused a drop in crop yields. 1.26 Credit for Small-Scale Agriculture and Large Farms. As a result of land privatization (para 1.8), one of the most critical remaining constraints facing private farms is the lack of credit. Results of the two farm surveys done during project preparation (one including about 4,000 respondents and the second about 2,000 respondents) indicate a broad and substantial demand for credit on the part of rural population, with 53% of the farmers in the survey indicating that they had a need for credit, in varying amounts up to AMD 300,000 (US $600 equivalent), with the most commonly requested credit terms being 6-12 months at interest rates 1-3 percent per month. At the same time there is a significant part of comparatively large privatized former collective farms (up to 200 ha) that have a great need of medium term loans for amounts up to $50,000. 1.27 Demand for rural credit for small-scale agriculture has been estimated based on analysis of the farm surveys and summary data provided by the Agricultural Cooperative Bank of Armenia (ACBA) from submitted preliminary loan application forms. According to these data, about 25% of the sample were found to have adequate repayment capacity to repay a 9- month, average-sized loan of AMD 250,000 (US $500 equivalent) priced at an annual percentage rate of up to 36%, with a cash coverage ratio of 1.50 or higher. These farms projected a return of 61% on their total costs (farm profit divided by total cost), suggesting that even relatively high market interest rates may not be a major impediment to borrowing. If, like the ACBA loan application sample, 25% of the 312,900 small farms reported to be operating in Armenia have the ability to repay average seasonal loans of US $500 (at 36% annual interest with a coverage ratio of 1.50), then total potential credit demand is on the order of AMD 19.6 billion (US $39.1) million. An additional survey of large farms, carried out in the fall of 1996, also revealed a strong demand for credit. The estimated total number of large private farms is 409. The average demand for financing by one farm is about $50,000, including both seasonal and investment credit. Based on this average and an estimated eligibility rate of about 30%, and a repayment capacity similar to that of small farms, the total demand for credit by large private farms might be on the order of US $6 to $7 million. Investment priorities included procurement of agricultural mechanization, land purchase, small-scale agroprocessing facilities, agricultural buildings, livestock, establishment of new orchards, and refrigeration (in descending order of indicated preference). A surprisingly high number of farms also expressed high priority for seasonal credit, giving a fair indication of the degree to which the agricultural sector is devoid of cash. 1.28 Rural Credit System. Formal banking services utilized by the rural population are minimal. Lack of bankable collateral and high loan interest rates and transaction costs keep formal lending to farmers at minimal levels. According to data provided by surveyed banks and the CBA, monthly loan interest rates ranged from 7% to 9% for natural persons in local currency. The limited bank credit provided to agriculture is concentrated on large loans to the food industries. Armagrobank reported that its outstanding loans to farmers totaled about US $140,000 on December 1, 1996, only 2% of its total outstanding loan balances (2% of US $9.1 million). Much of this consists of frozen balances of government loans granted in 1994 to both cooperatives and individual farmers. As a result, farmers and other rural producers must now rely mainly on their own resources and informal credit services to meet their production credit needs. Chapter 1 9 Currently, ACBA is the only bank that lends significant amounts to the private agricultural sector. Land Markets 1.29 As a result of the particular method followed for privatizing agricultural lands in Armenia, land has become fragmented. Each family in each rural community was given four to five parcels of land, one of each category of land which had made up the former collective. Thus, each family was given non-contiguous plots of cropland, vineyards, perennials, hayfields, and pasture, with each plot averaging about 0.3 hectares. In order to achieve more efficient use of land and effective use of agricultural machinery, it is necessary to establish a land market, which will allow, through sales, exchanges, and leases, the initiation of the land consolidation process. The growth of a land market and its activities will be assisted by the creation of a title registration system, including the issuing of land deeds (state acts) to the farmers. The state acts give the landowner tangible proof that he is the initial legal owner of the land. They also serve as a guarantee by the state to market agents that land can be used as collateral in return for receiving input advances, loans, or other financing instruments. The various activities involved in a title registration system, e.g., surveying, mapping, preparation of titles, has been examined during the past two years of the Title Registration Pilot financed jointly by the World Bank Institution Building Loan for Armenia and by resources from USAID. The experience of this pilot and its staff have been directly transferred to the State Cadastral Administration, which is now in chargePof establishing and operating the title registration system. Strengthening of Agricultural Institutions 1.30 An important factor constraining agricultural technology institutions (research, education, extension and information) has been the lack, until recently, of a unified strategy for the acceleration of changes required to respond to the transition to a market economy. Even with an appropriate strategy, there are currently few resources to support the system. All research institutes have drastically reduced their research activities due to the budgetary constraints. At present, the existing funds hardly suffice for salaries, which are below levels necessary to meet minimum family requirements, and don't permit scientists to carry out meaningful research work. Discussions with the directors of several research institutes reveal their acknowledgment of the necessary structural changes that the scientific research institutes should undergo to better serve the public sector. However, neither the directors nor the scientists and researchers know how to respond to the situation. In other words, they appear to be overwhelmed by the day-to-day problems facing the institutes and experiment stations. 1.31 The education staff of the Armenian Agricultural Academy requires up-to-date information to develop materials and a curriculum that will be able to meet the needs of students and farmers in the future. The training of qualified personnel is hampered due to the lack of new text-books, manuals, specialized literature, a modern printing capacity (to produce copies of the existing 100 publications and others to be produced), as well as the absence of computers. Despite the encouraging start of Agrogitaspure (extension service) and AgroPress (information service) in Armenia, progress is being hampered by the lack of vehicles (including fuel and maintenance), operating funds, office and audio-visual equipment, and other materials. Although some training has been provided to Agrogitaspure under the USDA project, it is limited compared with the large scope of needs. Almost all the staff have to be trained to assist 10 Background small farmers and to expand extension services at the proper level. Some of the senior staff could benefit from study tours to learn how extension and information service activities are organized in other countries. In sum, effective and coordinated personnel in agricultural technology-related institutions need to be deployed at the marz level to relieve the key knowledge constraints which are hampering agricultural production. E. Bank's Experience and Strategy Bank's Role and Past Assistance to Armenia 1.32 The project would support areas where the Bank has considerable experience, namely, rural finance, post-privatization, and agricultural services. The results of a recent evaluation of best practices in rural finance have been being taken inio account through discussion with the Project Preparation Unit (PPU) and the ACBA. The lessons learned from the various agricultural services components under implementation and preparation in the ECA region (but also in other regions as well) have also been incorporated into the design of the Agricultural Institutions component. One of the major challenges of this component has been to resolve the issue of downsizing existing research and extension institutions and focus more resources on improving the productivity and increasing the small-farmer focus of the remaining institutes and extension staff. Over the course of the past year of project preparation, this issue was continuously explored with the GOA, which decided in Spring 1997 to place the responsibility for coordinating research and extension with a newly established Agricultural Research Council and network of Agricultural Support Centers with local stakeholders councils. Experience from the first rural sector Bank project in Armenia (the Irrigation Rehabilitation Project - IRP), shows that the Government can administer and implement a project within an agreed timetable if the objectives are clearly defined. The IRP also has demonstrated the importance of technical assistance, especially to coordinate operational (procedural) and technical (design, equipment specification) issues simultaneously in a manner satisfactory to the Bank. Strategy for Assistance in the Agricultural Sector 1.33 Soon after independence in 1991, Armenia took steps to liberalize its economy in general, and the agricultural sector in particular, by introducing major reform programs. The Armenian land privatization program is unique among former Soviet Republics in regard to the speed and completeness of its implementation. At the request of the Government of Armenia, to ensure the successful implementation of these programs, an FAO/CP mission visited Armenia in April/May 1994 and assisted the Government in identifying a project that would support the agricultural reform programs. A prior mission from the World Bank visited Armenia in May/June of 1993 and prepared a review of the sector (Armenia: The Challenge of Reform in the Agricultural Sector) which reported on the status of food and agricultural sector in the Republic of Armenia during the first years of the privatized primary agriculture. It also presented an assessment of the process of the sectoral reforms needed to complete the transition to a market based agricultural sector. The most critical issues that will determine the future success of reforms in the sector and the recovery of food and agriculture in general are: Chapter 1 11 (a) developing a working competitive domestic market for agricultural products and agricultural sector services, required to accelerate the: (i) privatization of the remaining agro-industrial enterprises; (ii) de-monopolization of the distribution, input supply, and product market; and (iii) facilitation of the entry of foreign capital and firms into domestic agro-processing, input distribution and support services; (b) developing a financial intermediary system that can meet the rural sector's credit needs; (c) development and implementation of a title registration and information system to provide security of tenure, full information on land transactions, and a repository for property assessment information; preparation and implementation of a program to promote the emergence of land markets to support land consolidation and move towards a more efficient holding structure; establishment of a competitive land mortgage and credit system; (d) developing an institutional framework that is consistent with the needs of a market-based agriculture and emphasizes the state's role in supporting the private sector through setting standards and regulations and providing public goods and services such as extension services, research, and education focused on the needs of privatized agriculture. 1.34 Specific measures to implement the policy recommendations outlined above in (a), (b), and (d) are incorporated into the business plans finalized during project appraisal with the ACBA, and the Agricultural Research Council (both of which are available as separate reports, with summaries thereof in this SAR). The Agricultural Reform Support Project proposed in the following chapter would reinforce these policy changes by providing assistance to the restructuring of privatized agro-industrial enterprises, by making credit available to financial institutions willing and able to extend sub-loans to small fanners on a sustainable basis, and by undertaking significant restructuring of agricultural research and extension and investing in these agricultural services. A Title Registration Project currently under preparation is schedule for Board presentation in FY 1999 and will focus on launching the title registration system in both rural and urban areas for land and other real estate. Lessons Learned from Past Operations in the Agricultural Sector 1.35 The proposal project is IDA's second operation supporting Armenia's agricultural sector; following the Irrigation Rehabilitation Project which became effective in mid-1995. The IRP and a number of other projects in the ECA Region were examined during the design phase of this project. The most important one was a 1994 Agricultural Reform Implementation Support Project in Russia that is designed to accelerate agricultural reforms, strengthen agricultural support service, build-up institutional capacity to prepare and implement agricultural and agribusiness projects by the private sector, and develop market information systems and farmers' advisory services. Design of the Armenia project also took into account the experience gained under the 1993 Rural Alleviation Pilot Project in Albania and a subsequent 1995 Rural Development Project. Both of these projects contain small-scale credit components. Implementation of the pilot small-scale credit component in Albania was judged by OED to be satisfactory, its sustainability assured and its impact on institutional development substantial. 12 Backgrouwd Significant design elements of the above mentioned projects, especially in the area of loans to small farmers, were built into the proposed ARSP. CHAPTER 2 THE PROJECT A. Project Origin and Formulation 2.1 During discussion of the agricultural sector review "Armenia: The Challenge of Reform in the Agricultural Section" (prepared by the Bank in 1993-94), the GOA requested financial assistance to the rural sector for investment activities that would support the policy measures targeted by the GOA to revive production and exports. This request led to the preparation of materials for the proposed project during 1996, by consultants engaged under a PHRD grant from the Government of Japan. Major issues considered during the project preparation and final appraisal in 1997 were as follows: (i) the capacity of the banking system to meet the credit needs of small and large farmers and the justification for creating a new rural finance institution; (ii) the extent of agro-industrial enterprises' demand for investment loans and the capacity of banks to meet this demand through existing funds and lines of credit; and, (iii) the development of a restructuring plan for agricultural research and extension and delineation of appropriate investments to facilitate the reform of agricultural services. 2.2. Project implementation would commence in April 1998 after receiving approval of the credit for the ARSP from IDA and acceptance of this credit by the National Assembly of the Republic of Armenia. B. Project Objectives and Description 2.3 The overall objective of the Agricultural Reform Support Project is to increase agricultural productivity in Armenia by supporting the development of private sector farming and agro-processing. The intermediate goals of the project are to develop a sustainable rural finance system, facilitate the access of agro-industrial enterprises to existing lines of credit, and address key knowledge constraints in agricultural technology. This would be achieved by: a) providing training and consultant services to assist in the drafting of business plans presenting the medium-term investment needs of privatized agro-industrial enterprises - most of these plans would be presented to the PFIs under the Enterprise Development Project line of credit (as of late October 1997, six banks had qualified as PFIs under the ED?); b) developing a network of village credit associations that would mobilize resources and provide loans and financial services to small farmers and rural micro- enterprises; c) downsizing agricultural research and extension and increasing their focus on small farmers' needs to be informed about sustainable agricultural practices and availability of suitable agricultural technologies. 2.4 To support the above objectives, the proposed project would provide financing to three free-standing components: i) an Agribusiness Development Center; ii) Credit to Farmers 14 The Project through PFIs; and, iii) Strengthening of Agricultural Institutions under the Ministry of Agriculture and local stakeholder councils. A summary of these three components is presented below. Component 1: Agribusiness Development Center (US $1.228 million) 2.5 The detailed examination and assessment of agro-processing enterprises and large commercial farms carried out during project preparation revealed a lack of sufficient knowledge among agro-industrial sector enterprise managers as to how to approach post-privatization restructuring and draft business plans. Thus, the establishment of the Agribusiness Development Center (ADC) is designed to address this lack of knowledge through general and special subsector training courses for managers and entrepreneurs, as well as more specialized consulting in writing business plans and feasibility studies and providing commercial advice. The directors and management of most agro-industrial enterprises have a pressing need to upgrade their financial management and planning and marketing skills. Thus, the ADC is designed to be the focal point for technical assistance and training to the agro-industrial sector and to establish direct linkages with banks participating in the on-lending of the EDP line of credit. One of its major tasks will be to assist entrepreneurs and the management of agro- processing privatized enterprises in preparing loan applications and business plans. 2.6 The ADC will be staffed with locally recruited specialists with business administration degrees and with experience in agricultural processing, trading, and marketing. These local specialists are currently being trained in advanced topics in financial management and project finance by trainers with extensive international education and experience. The local staff are also participating in on-the-job training with agro-industrial enterprises organized through the Agricultural Marketing Enterprise. They will also undergo advanced training in loan evaluation procedures at the Armenian Business Support Center (ABSC). The ADC will provide assistance free of charge initially to encourage managers to seek assistance at the Center during the difficult period of rationalization and business planning. Once fully operational, the ADC will charge fees to cover part of the costs of services rendered to enterprises and over time become a completely self-financing non-profit entity. Financing of the equipment, staff, and other operating costs of the ADC are provided for under the ARSP, with support for operating costs phased out over time. 2.7 The ADC will also offer training programs for employees and management of agro- industrial enterprises in finance, marketing and strategic planning in order to provide the skills necessary for these employees to operate competitive business. The specific training areas would include the following: a) Financial training - would introduce enterprise directors and senior staff to the principles of investment project analysis, including the basics of analyzing operational results on an accrual basis, tracking and projecting cashflow, and making use of different sources of finance. It would also eventually involve overseas on-the-job training with similar agricultural processing facilities for the enterprise directors who exhibit the highest degree of mastery of the training concepts and those who produce the most promising business plans. b) Marketing - to focus on persuading enterprise managers to realistically appraise the quality of their product and its objective attributes, and then examine the range of markets where their product could possibly compete. Special attention will be given to packaging and Chapter 2 15 labeling requirements, shipping and other transport costs, and importing country requirements in terms of both legal procedures and technical requirements. Focus will also be placed on the degree of processing in which the enterprise should consider engaging and deciding on this degree as a function of the profitability for various levels of processing. c) Strategic planning - training would include the delineation of market strategies to focus on domestic versus export markets, the choice of optimal scale of operations and guidance on the streamlining of production facilities, sourcing of raw product and other input materials, and transfer of information on the attributes and availability of new processing and packaging technologies and standards. Component 2: Credit to Farmers (US $7.5 million) 2.8 The line of credit to farmers (CF) would be made available to ACBA and other PFIs who satisfy the eligibility criteria and negotiate subsidiary loan agreements with the Ministry of Finance and Economy. ACBA and PFIs would be accredited to participate in the project after meeting a set of predetermined accreditation criteria, which would assess the banks' financial viability as measured against international accounting standards (IAS), the presence of adequate management strengths, sufficient capability in assessing credit risks, credit absorptive capacity, and adherence to the CBA's prudential banking standards. The line of credit to farmers will finance seasonal loans and some medium-term investment loans for medium-sized farms (up to $50,000) through ACBA and other PFIs. Proposed on-lending terms and conditions to the ACBA and PFIs are described below (with additional information in Annexes A and C). 2.9 Govemment On-lending Terms and Conditions. ACBA and other PFIs would have the option of borrowing (and lending) project funds in either dollars or Armenian Drams (AMD). They would apply for loan funds on the basis of presented signed loan agreements with farms and other small-scale rural businesses, and disbursement to these PFIs would be made for the total of these sub-loan portfolios. The proceeds from these first round of sub-loans would then be re-loanable on a revolving basis. The repayment periods for these periodic tranches of loanable funds (each on the basis of additional sub-loan portfolios) would be between ten to fifteen years. Dollar denominated borrowing by ACBA and other PFIs would be at a floating LIBOR-based interest rate, to be adjusted semi-annually. ACBA and PFIs would repay interest semi-annually on both AMD and dollar based loans, with the first payment after six months, and would have the option of repaying all the principle at the end of the loan period. The maximum credit available to ACBA and PFIs would be ten times their capital and reserves (equity) measured according to international accounting standards. 2.10 The Project Implementation Unit for the ARSP would be responsible for ex-post review of sub-loans to medium-sized farms (loans above $5,000). The review process would include the preliminary review of business plans and determination that the loans proposed are in compliance with the objectives of the project, that an environmental assessment has been made, and that the documentation is complete. ACBA and other PFIs would assess the bankability of the loans and seek only final approval from the PIU (once their own credit assessment units had given preliminary approval). 2.11 ACBA and PFI On-lending Terms and Conditions. The sub-loans to small farmers, small rural enterprises, and medium-sized farms would for term-to-maturities of up to five years at market rates of interest. Clearly, most of the loans under the line of credit in the initial years 16 The Project of the operation will be for seasonal loans, since this is the first step in assessing the credit risks of farms which have no borrowing record. As borrowers demonstrated a reliable credit history, the loan terms to them would improve and allow financing of medium-term investments in acquisition of durable goods, such as farm machinery and small-scale processing equipment. Funds collected from sub-loans, except for interest, would be retained by the ACBA and PFIs for the term of the sub-loan plus three months, and would be available for further on-lending, so long as the ACBA and PFIs continue to meet the terms and conditions of the subsidiary loan agreements. ACBA and other PFIs would maintain a separate account for each sub-loan to medium-sized farms and permit the PIU Credit to Farmers Specialist to monitor for compliance under the terms and conditions of the credit line. Disbursements to ACBA and the PFIs would require the signature of the Credit Specialist and the PIU Director. Once the loans to ACBA and the PFIs were repaid to the Ministry of Finance and Economy, the GOA would be free to use the funds at its discretion. Component 3: Strengthening of Agricultural Institutions ( US $ 8.574 million) 2.12 The purpose of the project's Strengthening of Agricultural Institutions component is to finance the critical investments needed to make adjustments in key agricultural technology institutions during the reforms. The institutional component includes support for the following areas and institutions: Research: New Agricultural Research Council and Centers Higher Education: Armenian Agricultural Academy Advisory Services: Agrogitaspure Information: AgroPress Support Services: New Agricultural Support Centers 2.13 The objectives and scope of work for each sub-component on Strengthening of Agricultural Institutions are presented in Annex D. Funds for these activities would be used for the financing of facility improvement, equipment, vehicles, local and international training, technical assistance, and limited recurrent costs. The primary focus of this component is to support the agricultural research system to restructure and consolidate the activities of those current institutes which need to be part of a publicly supported research system so research can contribute more effectively to the agricultural sector in an emerging market economy. The new system will be client-oriented and linked to agricultural education and extension. For the achievement of the new research system it is necessary to implement strategic planning and priority setting exercises under the Agricultural Research Council (ARC) which is responsible for coordination of the national agricultural research system composed of five Centers and the Armenian Agricultural Academy. The research sub-component also aims to reduce, consolidate and make selected improvements in facilities; to support the priority research programs as identified by the ARC strategic plan; to improve the science linkages with external knowledge sources, and to develop the client relationships with extension and farmer groups. 2.14 The education sub-component is designed to improve the quality of higher agricultural education by providing training materials in the Armenian language and improving access to international sources of information. For the achievement of the mentioned goals it is necessary: to create a computerized information network and laboratories (USDA supported); to improve library facilities and access to international information; and to establish a printing capacity for the pu'blication of specialized literature and textbooks. The extension sub- Chapter2 17 component expands the geographic breadth and density of coverage services to the rural population to be served by the Armenian Extension Service and AgroPress by: establishing and equipping marz-level Agricultural Support Centers; making investments in transportation and communications for extension agents; and improving the quality and accessibility of informational materials. C. Cost Estimates 2.15 The total cost of the project, is estimated at US $19.8 million (Table 2.1). About US $9.3 million or 47% of the total are foreign costs and US $10.5 million are local expenditures. These estimates are based on prices prevailing in the international market during the period June- September 1997 and on local cost data from September 1997. Physical contingencies of 6% and price contingencies of 5.6% have been added to the base cost less the amount of the line of credit to farmers and the project preparation facility (US $10.8 million). These price contingencies are in line with Bank guidelines but reflect less than the full amount of projected dollar inflation because prices of computers and training equipment (a large share of project equipment) are expected to decline. The project cost is denominated solely in US dollar terms because of an underlying assumption that the exchange rate between the Armenian dram and the US dollar will depreciate at an average rate that compensates for dram inflation and leaves the real exchange rate unchanged. This assumption is based on the observed path of the dram rate over the period February 1996-October 1997, which has maintained a largely constant real value vis-a-vis the US dollar. Table 2.1: Project Cost Summary (US $ million) National Foreign Total % Foreign % of Exchange Cost Credit to Farmers 2.000 5.500 7.500 73% 40.4% Agribusiness Development Center 0.753 0.475 1.228 39% 6.6% Agricultural Institutions 5.757 2.817 8.574 33% 46.1% Project Implementation Unit* 1.099 0.184 1.283 14% 6.9% Total Base Cost 9.609 8.976 18.585 48% 100.0% Contingencies** 0.883 0.347 1.230 28% 6.9% Total Project Cost 10.492 9.323 19.815 47% 106.9% *Includes US $0.332 million of PPF for preparation of former title registration component which has been made a separate project. **Contingencies are calculated on Base Cost less the amount of the Credit to Farmers component. D. Financing 2.16 The IDA credit in the amount of US $14.5 million would be lent to the Government of Armenia at standard IDA terms with 35 years' maturity and a 10-year grace period. The share of the IDA credit is equivalent to 77% of total project cost. The GOA would contribute US $5.7 million equivalent, or about 20% of total project costs. In July, 1997, the Bank approved a Project Preparation Facility (PPF) of US $1.5 million for this project to finance final project preparation and initial implementation (pilot operations). Prior to negotiations, the GOA 18 The Project confirmed its intentions to provide appropriate contributions that are necessary to fulfill its share in the project financing of the local currency components and ensure adequate and timely project implementation. The financing plan for the project is presented in Table 2.2. 2.17 Grant cofinancing possibilities have been discussed with several donors that have indicated interest in providing for the technical assistance needs of the project. These cofinancing possibilities have not been confirmed prior to Board presentation. If confirmed after Board presentation, the unallocated amount of the IDA credit loan would be increased by a corresponding amount. Table 2.2: Financing Plan (US $ million) National Foreign Total IDA 5.177 9.323 14.500 Government of Armenia 5.315 5.315 TOTAL PROJECT COSTS 10.492 9.323 19.815 E. Procurement 2.18 Procurement arrangements for goods and services to be financed under the project, and their estimated costs and proposed methods of procurement are presented below. All procurement of goods to be financed from the IDA credit proceeds would be procured in accordance with the World Bank Guidelines for Procurement (January 1995, revised in January and August 1996), and using the Bank's Standards Bidding Documents. For procurement under NCB, the Borrower will use Regional, standardized bidding documents. Consultants would be selected in accordance with the Guidelines for Selection and Employment of Consultants by World Bank Borrowers (January 1997). A "General Procurement Notice" containing information about bidding opportunities for procurement on the basis of ICB will be published in the February 1998 issue of "Development Business" in accordance with Paras. 2.7 and 2.8 of the IBRD Guidelines. 2.19 Goods and services required under the Credit to Farmers component and involving contracts less than or equal to US $15,000 would be procured following commercial practices (with beneficiaries required to obtain more than one price quotation), contracts between US $15,000 and US $50,000 would be procured using national shopping procedures, and contracts higher than US $50,000 would use international shopping. Since no loans under the Credit to Farmers component will be in excess of US $50,000, the international shopping threshold will likely not be exceeded. This precludes the need to set ICB thresholds for this component. 2.20 Procurement arrangements and thresholds are provided in detail in Annex F. Equipment (estimated to cost US $2.2 million) to be purchased under the project would consist of vehicles, computers, office furnishings and equipment, training equipment, and laboratory equipment (see Annexes B, D, and E for details). Equipment would be procured using International Competitive Bidding (ICB) and International Shopping (IS) procedures. Technical Chapter 2 19 services for maintenance of vehicles and computers and other office equipment (estimated to cost a total US $ 0.366 million) would be procured through national competitive bidding owing to the lack of international firms in Armenia offering such services. Small works for rehabilitation and refurbishment would be procured through NCB and through Minor Works procedures for contracts less than or equal to US $50,000. Table 2.3: Summary of Proposed Procurement Arrangements (US $ millions) Procurement Methods Total Project ICB NCB Other NBF Cost 1 Works 1.1 Rehabilitation and 0.543 0.123 0.666 Refurbishment (0.489) (0.111) (0.600) 2 Goods 2.1 Equipment and 1.914 0.254 2.168 Machinery (1.914) (0.254) (2.168) 3 Technical Services 0.366 0.366 (0.329) (0.329) 4 Consultancies 4.1 Technical 0.340 0.340 Assistance (0.340) (0.340) 4.2 Training 0.780 0.780 (0.780) (0.780) 4.3 Project 1.333 0.497 1.829 Implementation (1.333) (1.333) Consultants 5 Miscellaneous 5.1 Line of Credit 4.850 2.000 6.850 (4.850) (4.850) 5.2 Incremental Costs 2.537 2.715 5.252 (2.537) (2.537) 5.3 PIU Incremental 0.064 0.064 Costs (0.064) (0.064) Total 1.914 0.909 10.280 5.212 18.315 (1.914) (0.818) (10.268) (-) (13.000) Refunding of PPF 1.500 Grand Total 19.815 Notes: 1/ Decimals may not add up exactly due to rounding 2/"Other" procurement methods under the ARSP loan include Minor Works for refurbishment ($123,200), international shopping for training equipment ($91,600) and office furnishings and equipment (162,200), and QCBS, QBS, LC, and I (quality and cost based selection, quality based selection, least cost, and individual) methods for consultant services ($2.45 million). 20 The Project 2.21 Consultant services. Technical assistance and training requirements under the project would amount to US $1.12 million. Included in this total are: 6 staff-months for the PIU; 30 staff months under the Strengthening of Agricultural Institutions component (Annex D); and 18 staff-months for the ADC (Annex E). Efforts are currently underway to secure grant financing for some of these requirements. Project implementation consultants in the Project Implementation Unit, the Agribusiness Development Center, the Agricultural Research Council, and the Agricultural Support Centers would be contracted on an individual basis by the PIU (through national advertising for positions and interviewing of candidates) to assist with the coordination of the ARSP sub-components as described in the terms of reference in Annexes B- E, and will be contracted in accordance with provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines. 2.22 Review by the Bank. All ICB contracts, the first two NCB contracts for each of the procurement categories (Equipment and Technical Services), the first international shopping contract regardless of its value, and all contracts for consulting services valued in excess of US $100,000 for firms and US $50,000 for individual consultants, would be subject to prior review and approval by IDA. All other contracts would be subject to ex-post review by IDA. Terms of reference for all consultant contracts would be reviewed in advance by IDA. Procurement information would be included in the quarterly project progress reports prepared by the PIU. 2.23 Project launch. During project pre-appraisal and appraisal missions in 1997, the Project Preparation Unit and the project beneficiaries have been provided with an overview of the Bank's procurements practices. The efficiency and capability of the Borrower to carry out the procurement in accordance with the Bank's procedures would be strengthened through ongoing training, mainly by the procurement team in the Irrigation Rehabilitation Project (IRP) PPU, which has three years of experience with Bank procurement procedures, and through use of the Standard Bidding Documents. Agreement was obtained during Negotiations that all procurement activities under the project wouldfollow the procedures outlined in Paras. 2.19 to 2.23 (Para. 5.3(a)). F. Disbursement 2.24 The proposed IDA Credit of US $14.5 million equivalent would be disbursed over a period of four and a half years, until the project's close on December 31, 2002. Based on the experience of the IRP to date, a disbursement profile for the ARSP has been prepared. Taking into account this experience and knowledge gained during project preparation, it is reasonable to assume that the Credit's proceeds could be fully disbursed over a four and half year period. A mid-term evaluation to examine all aspects of project implementation would be undertaken by IDA and the Borrower by June 30, 2000, or when disbursements reach 50% of the total credit amount, whichever is earlier. Commitments for major contracts would be approved through March 31, 2002. Estimated annual disbursements under the IDA Credit are shown in Table 2.4. Table 2.4: IDA Disbursements Projections (US $ millions) FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 Annual 3.536 5.768 4.035 3.483 1.762 Cumulative 3.536 9.305 13.340 16.823 18.585 Cumulative Contingencies 0.234 0.616 0.883 1.113 1.230 Grand Total - Cumulative 3.771 9.920 14.223 17.937 19.815 Chapter 2 21 2.25 The Proceeds of the credit would be disbursed as shown in Table 2.5 below: 2.26 Direct payment procedures from IDA to suppliers would be used. Disbursements against the categories described in Table 2.5 would be made upon receipt by IDA of fully documented applications, except for contracts valued at less than US $300,000 for goods and works, US $100,000 for consulting firms and US $50,000 for individual consultants, which would be made against certified statements of expenditures (SOE). Supporting documentation for SOEs would be retained by the Borrower and made available to IDA during supervision. The minimum size of application for direct withdrawals and issuance of commitments from the IDA Credit account would be 20% of the amount of the Authorized Allocation to the Special Account. All withdrawals for training would be done on the basis of an SOE, with all Term of Reference (TORs) for training subject to prior review. Table 2.5: Disbursement Categories (US $ million) Disbursement Category Allocation Disbursement Basis (1) WorKs - Rehabilitation and 0.790 100% of foreign expenditures, Refurbishment and Technical 90% of local expenditures Services (2) Goods - Equipment and 1.840 100% of foreign expenditures, 100% of Machinery local expenditures (ex-factory cost), and 90% of expenditures for other items procured locally (3) Consultancies 2.080 100% (4) Line of Credit 4.850 100% (5) Incremental Costs 2.150 75% for expenditures incurred prior to June 30, 1999; 60% for those prior to June 30, 2000; 40% for those prior to June 30, 2001; and, 20% for expenditures thereafter (6) Incremental Costs - PIU 0.060 100% (7) Refund of PPF 1.500 (8) Unallocated 1.230 (9) TOTAL 14.500 2.27 To facilitate implementation, the Borrower would establish a Special Account in a major foreign commercial bank on terms and conditions satisfactory to IDA. During the early stage of the Project, the initial allocation to the Special Account would be limited to US $250,000. However, when the aggregate disbursements under the Credit have reached the level of US $3,000,000, the initial allocation may be increased up to the Authorized Allocation of US $1,250,000. Documentation requirements for replenishment of the Special Account would include reconciled bank statements and other appropriate supporting documents. 2.28 At Negotiations, agreement was reached that disbursement arrangements will follow the procedures described in Paras. 2.25 to 2.27 and for establishing and operating the Special Account as described above ( Para. 2.27) (Paras. 5.3 (b) and ( c)). CHAPTER 3 PROJECT IMPLEMENTATION A. Organization and Management 3.1 The project would be carried out under the overall coordination and supervision of the Ministry of Agriculture (MOA) through the Project Management Board (PMB). The Project Preparation Unit has been transformed into the Project Implementation Unit (PIU) as of October 15. The head of the former PPU has become the Project Director and PIU Manager and is the principal linkage between the Bank and the GOA for the ARSP. The PIU is responsible for the day-to-day implementation of the ARSP. Project Implementation Unit 3.2 The PIU was created by the Government to coordinate and oversee implementation of the four components of the project. It is headed by the full-time employed Project Director, and includes technical and administrative staff (see Annex B for details). The PIU is responsible for: (a) providing information to, and seeking guidance about the project implementation issues from MOA and PMB; (b) coordinating and managing the recruitment of foreign and national consultants required by the ADC and the Agricultural Institutions component; (c) ensuring that all procurement contracts are in conformity with IDA's guidelines; (d) preparing and submitting for the IDA's review the annual work plans and consolidated semi- annual progress reports; (e) maintaining an account of project activities and expenditures; and (f) coordinating the monitoring and evaluation of project activities. Aside from being responsible for overall coordination of project activities, the PIU would also assume direct responsibility for the work of the ADC (para. 3.3). All staff in the PIU would be hired on one year contracts renewable annually for the duration of the project. The PIU would be disbanded at the end of the project. Agribusiness Development Center (ADC) 3.3 The ADC is organized to provide professional consulting services to agro-industrial sector enterprises and assist them to develop feasibility studies and business plans for them to access available loan funds to re-establish their activities in the domestic and foreign markets. Project Im_plementation 23 The design stage for the establishment of the ADC started in early April 1997. The detailed outline of the implementation plan was completed in mid-April and involved the following: a) Advertisement and interviewing of local MBA graduates (or graduates with similar business educational background) who also have experience in the agricultural sector ( April-June, 1997); b) Design of an advanced level three month training course for the ADC personnel who will become both trainees and business plan specialists (June-July, 1997); c) Selection of roughly 25 MBA graduates with agricultural sector experience (this was done from a group of over 60 candidates) and contracting of the international specialists for conducting the training course (July-August, 1997); d) Conducting an advanced training course for ADC trainees (September-December, 1997); and, e) Final selection and contracting of the trainees who have successfully completed the training course and become the ADC's staff (December, 1997) 3.4 A group of 8-10 ADC staff will be involved mainly in development of feasibility studies and business plans for agro-industrial enterprises and training the enterprise management how to use these plans to organize the ideas they have about enterprise restructuring. Another group of 4 ADC specialists will be responsible for organization and conducting training courses and seminars, including case studies for the managers and employees of agro-processing enterprises and private farmers with a main focus on: i) financial management; ii) strategic planning; iii) market demand estimation techniques; iv) streamlining of production facilities; and v) food technology and packaging. 3.5 Financing of the equipment, staff, and operating costs of the ADC would be provided under the ARSP Credit. The Center would also make use of technical assistance funded on a grant-basis by bilateral and other donor organizations (currently a grant for US $332,000 is under consideration by the UK Know-How Fund) for hiring short-term international consultants to train the local staff, and for organization of one-month work assignments of managers of Armenian agro-processing enterprises at developed country enterprises of similar profile. Credit to Farmers 3.6 A Credit to Farmers Specialist (CFS) will be based in the PIU to manage and administer the credit to farmers through ACBA and other accredited PFIs. The CFS would have the following responsibilities: (a) act as the Government's agent in approving and monitoring all government related financial transactions for the Credit to Farmers component of the project. This would include, inter alia, withdrawal of Credit funds in accordance with procedures established in the Credit Agreement, on-lending of Credit funds to ACBA and other PFIs, and advising the Ministry of Finance and Economy (MOFE) of due dates of principal and interest from the PFIs; 24 Chapter 3 (b) interac+ closely with CBA's supervision departmnent in monitoring the ACBA and PFIs to ensure continued compliance with eligibility criteria, as described in Annex C; and, (c) maintain the project's accounts for the Credit to Farmers component and provide administrative services, including monitoring the flow of funds. The CFS would prepare semi-annual reports providing details of funds channeled to ACBA and PFIs, sub-loans outstanding, and status of repayments. 3.7 The CFS would be a nationally recruited individual with relevant experience in banking and agriculture. This professional would be assisted by the necessary experienced accounting and clerical staff and one internationally experienced adviser (through periodic on- demand technical assistance missions). The Terms of Reference of the CFS and its national and internationally recruited experts are included in Annex C. The foreign expert would be a banking specialist who would assist the CFS in monitoring the PFIs' operations and help set up the system to administer and manage the credit on-lending function. 3.8 The functions of the CFS, management of the Credit to Farmers component, and the questions of cooperation with ACBA and PFIs as described in Paras 3.6-3.7, were agreed to during Negotiations (para. 5.3 (d)). Strengthening of Agricultural Institutions 3.9 In the PIU, an Agricultural Institutions Coordinator (AIC) and an Agricultural Institutions Specialist (AIS) will be in charge of coordinating loan related activities for the Agriculture Research Council (ARC), the Armenian Agricultural Academy (AAA), Agrogitaspure (agricultural extension service), AgroPress, and the Agricultural Support Centers (ASC). 3.10 The AIC in collaboration with the MOA, would be responsible for coordinating the funding for the establishment of Agricultural Support Centers at the marz level. Arrangements for local and international staff training and engaging foreign experts and national counterparts will be the responsibility of the AIC. For Agrogitaspure and AgroPress, the AIS would handle the provision of vehicles, training materials, office equipment, power generating equipment, and limited incremental operating costs. The AIC and ARC would oversee the restructuring of agricultural research from 14 institutes to five centers, the development of a strategic plan for research, the establishment of priority setting procedures to improve the research agenda and the eventual integration of the new research centers into the AAA. All local and international purchases, renovations, training and technical assistance would be facilitated by the AIS. 3.11 Close cooperation will be established between the AIC and the State Cadastral Administration which manages the title registration system to advise on title registration activities in precisely the areas where the Agricultural Support Centers are being implemented, since both the information communicated by Agrogitaspyure about appropriate sustainable agricultural technologies and a working land registry will be needed to facilitate farm restructuring and land consolidation. The detailed implementation plan of the Strengthening of Agricultural Institutions component is shown in Annex D. Project Implementation 25 Accreditation Requirements for Participating Financial Institutions 3.12 To be accredited as a participating financial institution (PFI) under the project, interested banks would have satisfy the criteria defined below, which have been agreed on between the ARSP PIU, the Ministry of Finance and Economy, the Central Bank of Armenia, and the World Bank. The potential PFI would have: (a) an acceptable audit report which: (i) covers the last year of operations; (ii) incorporates a portfolio review; and (iii) is prepared by external auditors in accordance with International Accounting Standards ("IAS"); (b) been in existence and has produced operating results for a minimum of one year; provided that in the case of a merger or reorganization of two or more PFIs, at least one PFI existed and produced operating results for minimum of one year; (c) a network of branches with experience in extending loans to individual farmers; (d) a capital adequacy ratio as defined under IAS of at least 4%, incorporating risk- weighted ratio as determined by the Basle Committee of Banking Supervision; (e) provided a certificate of compliance from CBA stating that: (i) it has a valid banking license, and specifying type and date of license; and (ii) the PFI is in general compliance with all relevant banking laws and regulations of the Republic of Armenia; (f) exposure to any one particular borrower as a percent of its IAS capital of no more than 30% by the date of its accreditation as a PFI; (g) aggregate exposure to insiders (defined as council members, members of the Management Board of such PFI, employees in a management position and shareholders with voting rights in excess of 10%) of no more than 100% of IAS capital as of the date of its accreditation as a PFI; (h) on the basis of the audit report referred to in paragraph I (a) of the agreed upon Schedule, has adopted adequate policies and procedures with respect to credit administration, loan servicing, and other key areas of banking practice; (i) established capacity, for credit, accounting, and to manage investment lending to enterprises; and (j) adopted a strategic corporate plan acceptable to the Association which includes, inter alia: (i) a program to fully convert its accounts to IAS by January 1, 1998; (ii) specific arrangements to increase its capital adequacy ratio to 8% within a reasonable timetable; and (iii) specific arrangements to strengthen its capacity for credit, analysis, loan approval, accounting, and environmental assessment for management of investmnent lending. 3.13 At negotiations, agreement was obtained that the participation criteria for the PFls would be as described in para. 3.12 (Para. 5.3 (e)). A condition of disbursement for the 26 Chzapr 3 Credit to Farmers component would be the signature of a subsidiary loan agreement between Ministry of Finance and Economy and at least one qualified PFI (Para 5.3(i)). Lending Terms to Private Farms 3.14 Repayment periods of sub-loans to farms and rural businesses would be established on the basis of cash flow projections for each sub-loan but would not exceed the useful life of the goods being financed. In no case, however, would maturities of sub-loans exceed five years, including grace periods of up to two years. 3.15 Eligible loans would be made according to lending decisions of ACBA and other PFIs who will assess the lending risks. Lending decisions would be based on ACBA's and other PFIs' appraisal and other documentation necessary to assess the technical and financial viability of the proposed investment and the credit worthiness of the borrower. The following conditions will apply: a) Each sub-loan shall be made to a beneficiary which shall have established to the satisfaction of the PFI and the PIU that it is engaged in agricultural production or agribusiness and has provided financial statements to the PFI and a plan for use of funds and projected earnings. b) Sub-loans shall be made for sub-projects which are determined to be related to the type of business in which a beneficiary is engaged and which is technically feasible and financially and commercially viable, based on the projected cash-flow analysis, and designed in accordance with appropriate environmental standards and the laws of the Republic of Armenia. c) The total amount of each Sub-loan made to an Beneficiary for a Sub-project by a PFI shall not exceed the equivalent of US $50,000. 3.16 No expenditures for goods, works or services required for a sub-project shall be eligible for financing out of the proceeds of the ARSP line of credit unless: (a) the sub-loan for such Sub-project shall have been approved by the PIU and such expenditures shall have been made not earlier than ninety (90) days prior to the date on which the PIU shall have received the application and information required in respect of such Sub-loan; or (b) the sub-loan for such Sub-project shall have been a "free-limit" sub-loan for which the IDA has authorized withdrawals from the ARSP line of credit. For the ARSP line of credit, the "free-limit" will be set at US $15,000. 3.17 Once a loan to a farm or rural enterprise is approved by ACBA or other PFIs, the loan documentation would be submitted to the PIU. The first three sub-loans to be approved by ACBA and PFIs, irrespective of size, and all loans above the free limit, would be subject to review and approval by the PIU and IDA. After obtaining these approvals, funds would be released to the ACBA and PFIs. Project Implementation 27 3.18 Eligibility for Financing. In order to be eligible to receive loans under the project, sub-projects would have to satisfy the following eligibility criteria: (a) financial projections should demonstrate collateral coverage ratio of at least 1.2 over the life of the project, calculated on the basis of the entity's debt and cash flow coverage ratio of 1.5; (b) cash flow is adequate to meet debt servicing; (c) financial rates of return on proposed sub-projects should exceed 15% in real terms; (d) for large farm medium term loans, the certification from the relevant local or national authorities that the proposed sub-project meets all environmental laws and standards in force in Armenia. 3.19 Appraisal Methodology. Sub-loan applications would be supported by detailed business plans for medium-term loans and loan application forms for seasonal loans covering the following: (a) technical feasibility, financial viability, and commercial soundness of the proposed investment; (b) an evaluation of the proposed scale of the sub-project, the location of farm, its layout and the estimated investment costs in domestic and foreign currencies; (c) an evaluation of the sub-borrower's credit worthiness, organizational management and financial ability to implement the sub-project. 3.20 Assurances were obtained at Negotiations that the appraisal methodology and terms and conditions for on-lending under the project would be as specified in Paras 3.14-3.19 (para 5.3 a)). B. Accounts and Auditing 3.21 Separate accounts would be kept for each project component. Accounts of the Credit to Farmers component would contain detailed records of each sub-loan approved by the PFIs and information on the amount and source of funds disbursed under each sub-loan. Information to be compiled under this component's accounts would include the amounts disbursed to ACBA and other PFIs and the schedule of their interest and principal repayment obligations. Separate project accounts would be maintained by the PIU for the disbursements made under the Title Registration Component, the Institutional Strengthening component, and for the ADC. Semi-annual statements of all these accounts would be submitted to the Director of the PIU who would use them as a source of information for management report on the status of project implementation. 3.22 Independent auditors acceptable to IDA would conduct an annual audit of the project's accounts. Certified copies of these audits would be submitted to IDA within six months of the end of the Government's fiscal year. The cost of these audits during the first five 28 Chapter 3 years would be borne by the project. All participating PFIs would be subject to annual IAS audits that would be reviewed by the IDA. The PIU would arrange with ACBA and other PFIs to have their accounts and financial statements audited in accordance with international auditing standards by independent auditors. The cost of these audits would be borne by the PFI. The scope and content of the audits would be agreed in advance with the IDA. Certified copies of the auditors' report would be retained by PIU for subsequent review by IDA missions and as a source of information for monitoring sub-borrowers' financial performance. Assurance on the above was obtained at Negotiations (para. 5.3 (g)). C. Reporting and Evaluation 3.23 The PIU staff would be responsible for monitoring and evaluating the impact of the project. The PIU's Credit to Farmers Specialist would review the performance of ACBA and other PFIs through field visits and review of the corresponding accounts and auditor's reports. The Agricultural Institutions Coordinator would monitor the process of restructuring in the research and extension institutions and the investments financed by the ARSP in these institutions. The PIU Director would be responsible for liaising with the Coordinator of the ADC to monitor the implementation of the training and consultant services offered by the ADC and identifying where additional training of ADC personnel is needed. 3.24 Reporting. The PIU staff would prepare semi-annual progress reports to be consolidated by the PIU Director into a progress report to be submitted to IDA within 60 days of the end of the period under review. These progress reports would include a summary statement of the project's overall financial status, a brief descriptive section on the accomplishments of each of the project's components, a summary of contracts signed, and the status of procurement, as well as highlighting problems encountered during implementation. 3.25 Implementation Completion Report. Promptly after completion of the project, the PIU staff would prepare a report on the execution of each component, its costs, and the benefits derived. The PIU Director would consolidate these reports and add an evaluation of the performance of the institutions which took part in project implementation. The consolidated report would be submitted to IDA not later than six months after the closing date. Agreement of the above, as reflected in Paras. 3.23-3.25, was obtained at Negotiations (para. 5.3(h)). 3.26 The proposed plan for Project supervision envisages an average of two supervision missions per year. The skill mix of supervision staff would ensure the presence of adequate IDA experts in banking, enterprise development and restructuring, title registration, and restructuring of agrictltural institutions, as well as knowledge of Bank/IDA procurement and disbursement rules, as necessary. A mid-term review is planned for November, 2000 (earlier if considered necessary), at which time progress towards meeting Project objectives would be assessed. 3.27 IDA's monitoring would focus on: (a) the performance of the ADC, including the training programs, business plans and data collection, qualification of agro-industrial enterprises for investment loans; (b) the financial performance of ACBA and other PFIs, and the extent to which loans by ACBA and other PFIs respond to the credit needs of the rural population; Project Implementation 29 (c) the impact of loans on production and productivity; and, (d) the progress of implementation of the restructuring plan for the agricultural research, extension, and education institutions included in the Institutional Strengthening component. CHAPTER 4 BENEFITS, RISKS, AND ENVIRONMENTAL IMPACT A. Benefits 4.1 The primary beneficiaries of this project are the small farms, rural enterprises, and agro-processing enterprises of Armenia. The line of credit through ACBA and other PFIs would benefit small farmers by supporting a low cost mechanism for lending. Training in project analysis and business plan preparation would assist agro-industrial enterprises to present bankable investment plans to financial institutions and gain access to capital for post- privatization restructuring. The strengthening of selected agricultural institutions would provide a wide range of extension and information support to private farmers. 4.2 Although the project is expected to generate substantial benefits, it is not possible to measure these benefits using conventional economic analysis. However, with the removal of financial distortions and subsidies agreed recently under the Structural Adjustment Credit, and with sub-loans to farms and small enterprises made at market rates, the project is expected to yield a rate of return higher than the opportunity cost of capital. A qualitative list of expected benefits from each of the project's components is presented below. 4.3 Agribusinea Development Center (ADC). The ADC would provide the following benefits: (a) Rehabil.tation of enterprises, thus increasing productivity of existing investments; (b) Increase in foreign investments and the creation of joint ventures leading to the transfer of technology to Armenia; (c) development of capacity to compete in foreign markets and expand exports and enable enterprises to be more efficient and productive; and (d) Improvements in revenue, management and productivity of enterprises 4.4 Credit to Farmers. The line of credit would provide the following benefits to private farmers and small and medium-scale rural enterprises: (a) Development of a capacity to evaluate and administer short-and medium-term loans to farms and rural enterprises, thereby increasing rural income and employment; (b) Introduction of more financial services to the rural sector, enabling the mobilization of deposits and on-lending for productive purposes; and, (c) Further development of financial management skills in rural finance both by ACBA loan officers and those in other PFIs, enabling a self-sustaining rural finance system. Benefits. Risks and Environmental Impact 31 4.5 Strengthening of Agricultural Institutions would result in: (a) The introduction of agricultural techniques which are sustainable for small- scale farmers through the provision of information fact-sheets, briefing materials and consultancy services to the farmers by the extension service; (b) The development of a market-oriented agricultural scientific-research system responsive to the current and future needs of small-scale farming communities; and, (c) The training of high quality specialists capable of executing sustainable agricultural research and extension by undergoing education in a system that is monitored with a knowledge assessment rating system (see Annex D). 4.6 The fiscal impact. The main direct fiscal impact of the project will be through the Institutional Strengthening, since this component involves a range of operational activities for the provision of agricultural services through the Agricultural Research Centers, the marz level Agricultural Support Centers, Agrogitaspyure (the extension agency), and AgroPress (distributor of market information). A total of US $2.7 million would be contributed by the GOA and through user fees by farmers, in annual amounts increasing steadily from US $0.44 million in FY 1998 to US $1.33 in FY 2002. Though the rural credit component will promote increased production and income, it is difficult to calculate the fiscal impact since much of agriculture is not subject to income taxes. Land tax is the main revenue generator in the agricultural sector, and to date the collection rate of these land taxes paid is high (over 80% of rural land owners pay their taxes, with an average assessment bill of about $25 per year). B. Risks 4.7 The project is complex and will inevitably be faced with various risks. It is the first broad-based and multi-disciplinary project in the country's agricultural sector. The lack of experience in handling similar projects could affect full attainment of project activities. Regarding the delivery of the most complex project component, the Agricultural Institutions component, a significant amount of training and technical assistance will be provided under the project for further refining the existing strategic plan for integration of agricultural research, extension, and education. Reforms to implement this process are already underway. In addition, to assure greater accountability and sustainability, it was agreed during negotiations that farmers' requests for research focused on their expressed needs (channeled through the ASCs to the ARC) would be the main source of input for working out research priorities. More broadly, main risks which the project could face are systemic ones related to a continuation of the blockade, delay in the functioning of markets and financial institutions, and inadequate budgetary resources. Given the high Government commitment to liberalize the economy, macro-economic instability is unlikely to be a major risk to the project. In any case, there is little that the project can do alone on this matter, but many donors, including the World Bank and the International Monetary Fund, are encouraging and supporting GOA to continue its economic reforms. In regard to the blockade, a recent easing of the conflict in Karabakh and the dialogue initiated between the opposing parties are a cause for optimism. In addition, the opening of alternative routes through Iran has already provided the basis for a hopeful outlook. However, in the event of a serious regression in the macro-economic situation, consideration would need to be given to limiting the 32 Chapter 4 on-lending to farmers in foreign currency since the foreign exchange risk would likely increase to unsustainable levels. The implementation risks associated with the Credit to Farmers component would also be mitigated through the provision of technical assistance and training to PFIs. C. Economic Analysis 4.8 The ARSP builds on the stabilization of water supply and improved efficiency in the irrigation sector which has been targeted by the Irrigation Rehabilitation Project, by focusing on agricultural services, financial infrastructure and agro-processing sector bottlenecks which were identified in the Agricultural Sector Review (1994) and subsequent ESW as the limits to rural sector growth. The ARSP clearly targets one of the key goals of the CAS (adopted for Armenia in August 1997) which is improving the environment for private sector development. Since the rural sector in Armenia currently accounts for 40-50% of GDP and serves as a safety net for a large share of the former urban population (which has lost its industrial employment and been forced back into rural areas to engage in subsistence agriculture), addressing private sector development in the agricultural sector is key to general economic growth as well as to the strengthening of social protection during the transition to a vibrant market economy. 4.9 The ARSP also builds on a strong foundation of agricultural policy reforms which consist of the most widespread land reform in the ECA region, virtually complete liberalization of domestic and foreign trade, well advanced privatization and demonopolization of the agro- industrial sector (including processing, input supply, and marketing), and demonstrated commitment to restructuring of agricultural sector institutions. The ARSP addresses not only the supply side of the agricultural development strategy by making individual private farms the focus of Armenia's agricultural research, education, extension, and information institutions and by supporting the further growth of the emerging rural financial infrastructure which serves them; it also targets the demand side by providing technical assistance and training for agro- industrial restructuring provided through the Agribusiness Development Center. Lastly, through improved availability of sustainable agricultural practices and emphasis on tradable property rights, the ARSP aims to make a contribution to improving environmental management. Justification for Public/Private Interventions in Agricultural Services 4.10 The two ARSP components which propose to support public providers of services that in other countries are often provided by the private sector are the Agricultural Institutions Component and the Agribusiness Development Center. A public sector delivery mechanism has been opted for in the area of agricultural research and extension because the value of research results in locally adapted technologies and the extension of these sustainable agricultural practices is generally not perceived by Armenia's farmers (low notional demand) nor is harnessable by private sector providers because of its public good nature (low effective demand). In addition, the high discount rate which the private sector demonstrates in its choice of investment activities (25% or above) indicates that the long-term benefits of sustainable agricultural practices have low net present value, leading to underinvestment in research and extension. In fact, by making farmers aware of the unsustainability of current practices which often lead to excessive erosion, salinization through over-irrigation and insufficient drainage, and high losses to pests and spoilage, the research and extension system will create higher demand for information on agricultural techniques. Part of this demand (for specialized Benefits. Risks and Environmental Impact 33 consultations for which fees could be charged) will then be served by the private sector in the future. 4.11 The Agribusiness Development Center (ADC) is designed to make agro-processing enterprise directors and management aware of the principles involved in preparing financial and marketing strategies in business plans to be presented to potential investors and financial institutions. Ideally, this service could be provided by a private sector purveyor, but the current perception by agro-industrial enterprises of the business advisory services available to them is that the consultations are overpriced ($1500-$2000 per business plan produced) given the very general nature of recommendations provided and made from a largely uninformed perspective (vis-a-vis specific agro-industrial problems in Armenia). Thus, the demand for financial training and business plan consultations from existing consultancies (KPMG and the quasi-private Armenian Business Support Center) by the agro-industrial sector is low. The personnel of the ADC are being drawn from a cohort of specialists with business administration education and agricultural training, and as such will be better able to demonstrate the value of financial training and business plan consultant services to agro-industrial enterprises. 4.12 The strategy of the ADC is to give agro-industrial managers free training and then charge slowly increasing fees for business plan consultations (starting at about $300-500 and increasing over four years to about $700-800 per business plan completed). Given the US $1.2 million to be spent on the ADC and the projected goal of completing 150-200 business plans for privatized agro-industrial enterprises over four years (about 8 business plans per specialist per year), the average total cost of $600-800 per business plan compares favorably to the current rates of $1500. Eventually, as the agro-industrial sector's notional and effective demand for business and finance consultancy grows, the ADC specialists will be able to establish private consulting firms. Credit to Farmers 4.13 Prior to the establishment of the Agricultural Cooperative Bank of Armenia (ACBA) the flow of credit to small farmers through institutional channels was virtually non- existent (analysis from 1995-96 examining the development of rural finance is available in the Rural Credit Evaluation u orking paper available in the project file). There are two main reasons for this: the high costs of intermediating small loans and the perception of high risk by Armenian depositors. 4.14 Since most rural customers for institutional credit have the need and ability to borrow between $500-1000 for working capital and small investment loans, these customers are not an attractive pool of borrowers for most banks. Most banks do not have branches in Armenian rural villages and are not interested in making small loans: the transactions costs of gathering information in distant locations and verifying the projected results of these small farmers business plans are too high. ACBA addresses this by having been formed out of over 100 village associations (VAs) which are widely distributed in the three most heavily populated agricultural marzes. These VA's represent a decentralized, low cost way of addressing the problem of asymmetry of information by locally screening the credit applications from potential farm borrowers. The costs of servicing small loans is still high (12-15 percent of assets) but less than it would be without local institutional capacity. 34 Chapter 4 4.15 The reason the ARSP has included a component for increasing access to long term financial resources for ACBA and other qualifying PFIs is that ACBA and other PFIs face great difficulties in mobilizing medium and long-term deposits. This is because the perception of risk by potential depositors is higher than actual risks: few Armenians put their savings into local banks because of the loss of virtual all the population's savings in the early 1990s when the national savings bank collapsed. Those who do make deposits typically require a risk premium so high that is makes the costs of funds above 20 percent per annum in real terms. Thus, by providing long term resources to ACBA and other PFIs, the ARSP Credit to Farmers component is meant to allow the rural finance system to grow as confidence by depositors is rebuilt and their deposits mobilized. Performance Indicators 4.16 The set of project objectives, expected project outcomes, and performance indicators for each is presented in Table 4.1 on the following page. 4.17 The construction of project performance indicators has been done in tandem with each of the project component's beneficiaries in order to reach a common understanding between the beneficiaries what is expected of each. This type of team building exercise has been of particular importance for the Institutions Strengthening component, where the complexity and interrelated nature of sub-components requires careful coordination. The performance indicators target the most important project outcomes but in no way represent an exhaustive list of project impacts. As project implementation proceeds, the set of project performance indicators will be refined, bearing in mind the realistic ability to gather information on each indicator in a cost- effective manner. D. Sustainability 4.18 The project's basic rationale is that the agricultural sector should, over time, become self-sustaining without having to rely on government subsidies (currently through low irrigation water charges) and protective measures. Thus, sub-loans to farms and rural enterprises would be at positive real interest rates, with PFIs bearing the full commercial risk. Interest rates are projected (see ACBA Business Plan, July 1997) to cover all operating costs. However, to successfully serve as the co'nduit for the rural finance component, the ACBA will need to become a true member-owned and capitalized cooperative bank. It must develop a disciplined, market-based financial intermediation strategy and continue to implement sound lending procedures adapted to Armenia's legal, social, and economic environment. It will also have to build the institutional capabilities of its village associations to manage and protect the bank's funds invested in their communities. Benefits. Risks and Environmental Impact 35 Table 4.1 - Project Objectives, Outputs, and Performance Indicators Narrative Summary Key Performance Indicators Monitoring and Supervision CAS Objective (i) private sector enterprise (i) growth of rural non-farm income; (i & ii) Survey of current status of development; Armenian agriculture and updates (ii) growth of agricultural production based on future periodic surveys; (ii) private sector-based and income; agriculture and agribusiness (iii) PIU and both ARSP development; (iii) decisions by GOA to allocate supervision missions and SAC II sufficient budget to agencies involved in supervision missions. (iii) public institutions agricultural extension, provision of strengthening to establish market information, and agricultural enabling environment for education and research. private individual agriculture tenure. Project Objectives i) the timely development of a (i) expansion of self-sustaining village PIU progress reports and: for (i) working rural financial system; credit associations (VAs) and staff reports from Credit Agricole trained in rural banking; implementing TACIS training; ii) the strengthening of agricultural support services; (ii) increase in depth of coverage and (ii) monthly reports by the frequency of visits by agricultural Agricultural Support Centers and iii) the successful restructuring service providers to private farmers, and annual surveys of farmers' sense of of privatized agro-processing degree of re-orientation of agricultural inclusion in agricultural institutions' enterprises. research and extension to small private restructuring process and their farmers; satisfaction with agricultural support services provided; (iii) increased loans and DFI to privatized agro-businesses. (iii) EDP supervision reports Project Outputs (i) farner and rural enterprise (i) number of VAs established, number Actual versus target performance loans; of rural enterprise and farmer loans based on: (i) reports from ACBA; made, and repayment rates on loans; (ii) extension information (ii) reports from Agrogitaspyure; consultations; (ii) distribution and number of extension service visits with farms; (iii) reports from Agricultural (iii) improved availability of Academy and ARC; agricultural education materials; (iii) number of textbooks supplied, intemet connections set up, and (iv) reports from the PIU's (iv) improved availability of improved quality of research; agribusiness restructuring sections. agribusiness restructuring information and training. (iv) number of ADC training seminars. 36 Chapter 4 4.19 Efforts would also be made to establish a foundation for introducing fees for service in the agricultural services area by ARSP implementation. The crucial issue is whether farmers value these services enough to pay. Currently, too few farmers have been reached by the extension system to form an informed opinion about the viability of fee for service. In the short- term therefore, the availability of local budget will be crucial in covering the salaries of government workers in the agencies involved in the ARSP (Agrogitaspyure, AgroPress, Agricultural Research Centers, etc.). To achieve this, the MOA will have to allocate an average of roughly US $600,000 annually. Thus, reallocating money from lower priority MOA activities is one of the key steps needed to assure sustainability in terms of government financing. Bilaterally financed technical assistance to support the implementation of all the components is being sought, and in the cases of rural finance and agricultural extension such technical assistance is already being provided by the EU and the US Department of Agriculture. E. Environmental Impact 4.20 The proposed project would not create any substantive environmental hazards. However, since a substantial part of rural credit provided under the Credit to Farmers component could be used to finance the purchase of agro-chemicals, the project has been classified as a category B project. No separate environmental analysis is deemed necessary, but the PFIs' operational procedures for analyzing the storage and application of agro-chemicals when considering the granting of a sub-loan will be carefully drafted and monitored by the Agricultural Support Centers which the project would establish in each marz. Assurances were obtained during negotiations that these procedures will be mandatory for the PFIs. Moreover, the farms obtaining sub-loans through the Credit to Farmners component are subject to the existing regulations and environmental assessment procedures of the Ministry for Environmental Protection. F. Poverty 4.21 The project is not explicitly focused on poverty alleviation. It is focused on the development of the rural finance system and the rekindling of demand from agricultural processing enterprises for primary agricultural produce. Therefore, it has strong linkages to a large number of small-scale private farmers. In this regard it would help increase the access of poor farmers to formnal credit. The sectoral institutional strengthening and title registration components would also improve agricultural practices and farmers' ability to borrow in the medium-term. For these reasons the project will have an indirect but substantial impact on poverty reduction. CHAPTER 5 AGREEMENTS REACHED AND RECOMMENDATION A. Conditions of Appraisal 5.1 The following conditions of appraisal were all met by September 30, 1997: (a) The MOA should approve the proposed restructuring plan drafted by the PPU for the agricultural research system and decide on the final restructuring plan. (b) The MOA should set up an Agricultural Research Council in charge of approving a strategic plan for the agricultural research system and hire the Executive Director of the Agricultural Research Council. (c) The MOA should work out a methodology for the choice of locations for the Agricultural Support Centers, a schedule for the formation of the centers, and an administrative scheme for the centers that provides for the flow of project fiunds to personnel affiliated with Agrogitaspyure, AgroPress, the Agricultural Research Council, and the AgroMarketing enterprise. (d) The personnel of the Agribusiness Development Center should be contracted through a series of local announcements and an evaluation by a board including the PPU Director, a representative of the MOA, the Rector of the Agricultural Academy, and the head of the AgroMarketing enterprise. (e) The GOA should issue an official resolution on the organizational location of the government agency responsible for establishing and operating a unified registration system for land and other real estate. B. Conditions for Negotiations 5.2 Negotiations proceeded after the GOA fulfilled the following conditions: (a) The GOA created the Project Management Board for the ARSP to include representatives of the Ministry of Agriculture and ACBA. (b) The ACBA finalized a business plan acceptable to IDA which includes simulation analysis of the various levels of interest rate charged on long-term borrowing (from the Bank and other sources) which ACBA could sustain, and also expand its rural banking network as proposed. (c) Submission by the Ministry of Agriculture to the Ministry of Finance and Economy of a request for budget for the operational costs of the Institutions component of the ARSP encompassing the Agricultural Research Centers, Agrogitaspyure, and AgroPress, and the social fund payments for the PIU, the 38 Chapter 5 Agricultural Support Centers, the Agricultural Research Council, and the Agricultural Support Centers. This budget request was for the dram equivalent of US $600,000 in calendar year 1998. C. Agreements Reached During Negotiations 5.3 During negotiations, assurances were obtained that: (a) all procurement activities under the project would follow the procedures outlined in Paras. 2.19 to 2.23; (b) disbursement arrangements would follow the procedures described in Paras. 2.25 to 2.27; (c) arrangements for establishing and operating the Special Account would follow the procedures described in Para. 2.27; (d) the functions of the CFS, management of the Credit to Farmers component, and the cooperation with ACBA and PFIs would be as described in Paras. 3.6-3.7; (e) the participation criteria for the PFIs would be as described in Para. 3.13; (f) the appraisal methodology and terms and conditions for on-lending under the project would be as specified in Paras. 3.14-3.19; (g) institutional arrangements regarding the auditing procedures for the project accounts and the accounts of the PFIs would be as specified in Para. 3.22; and, (h) terms and conditions for the preparation and submission of progress reports and of the ICR would follow the arrangements outlined in Paras. 3.23- 3.25; and, (i) the signature of a subsidiary loan agreement between Ministry of Finance and Economy and at least one qualified PFI would be a condition of disbursement for the Credit to Farmers component as detailed in Para. 3.13. D. Recommendation 5.4 With the above assurances and conditions, the project would be suitable for an IDA Credit of SDR 10.7 million (US $14.5 million equivalent) for 35 years, including 10 years of grace. Annex A THE BANKING SECTOR 1. In order to obtain a certain understanding of the present credit system, contacts were made with Midland Armenian Bank (Midland Bank), Armagrobank, Armenian Bank of Reconstruction and Development, United Bank and Agricultural Cooperative Bank of Armenia (ACBA). Midland Bank 2. Midland Bank is, at present, the only Western bank operating in Armenia. The capital of the bank is US $ 6 million, and it has been in operation for about two years in Yerevan. The bank is interested in participating as an intermediary of the World Bank credit line under the Enterprise Development Project. Midland Bank expressed a preference for lending to only agro-industrial enterprises, not private farms. 3. Midland Bank has only one office in Armenia at present, but is planning to increase the number of offices within a year. The main lending type is short term loans, three to six months, at a rate of 25 percent per year in US dollars. Up to now, few loans have been made over 12 months. Present borrowers are mainly traders. The size of sub-loans is being kept within a limit of 5 percent of the capital (less than US $ 300,000). However, Midland Bank can make special arrangements such as combining loan funds with suppliers credits to finance larger projects. 4. The bank is interested in developing a lending program to the food processing sector as long as good collateral and adequate business plans are presented. However, the management stated that a careful view will be taken of introducing loans to the sector. 5. According to Midland Bank, no applicable law exists, with regard to handling collateral, which is a must if any more medium to long term financing program should take place. One of the major problems expressed by Midland is the security of priorities on collateral. Apparently, under Armenian law, the Tax Department has priority on claiming enterprise assets for non-paid taxes. Banks are the second in line when trying to seize collateral pledged on overdue loans. 6. Midland is the main lender not dependent on financing from the Central Bank of Armenia (CBA). Its rates can be taken as a reliable indicator of market rates. ArmagroBank (Agro Bank) 7. The bank was previously a state-owned bank but has been converted into a joint stock bank, with substantial ownership now by private companies and individuals. The bank has 48 branches, of which 5 are located in Yerevan. The bank is the second largest in Armenia with capital of $700,000. It is involved in the EBRD financed Wholesale Market Project. Under this project Armagrobank would receive a credit line of US $3.5 million for on-lending in the agribusiness sector. As of November 1997, this arrangement had not been finalized. 8. At present the bank is making only short term loans, with interest rates up to 90 percent in local currency per year financed with loans at 40-50 percent from the Central Bank, but with Annex A Page 2 of 3 limited resources. Many of the agro-enterprises dealing with the bank complain about poor service and very slow disbursements. Lending to farmers is quite small with a total outstanding portfolio of US $140,000. Average loan to farmers is around US $5- 10 thousands. 9. Armagrobank was audited by KPMG for the 1996 operational year and received a favorable evaluation. The bank is currently being seriously considered for participation under the EDP line of credit. 10. Collateral now taken are gold, vehicles, real estate in Yerevan, state bonds, deposits, and Government guarantees. Land is not yet accepted as collateral. United Bank 11. United Bank was created as a union of two banks: Armfood Bank and Hrazdan Bank. It is owned mostly by state owned enterprises, and the main sector for its lending is agro-industry. Total capital is US $ 600,000. At present the bank has three branches in Bagramian (Armavir marz), Hrazdan (Kotaik marz), and Goris (Siunik marz), with headquarters in Yerevan. 12. Volume of lending in 1996 was about AMD 240 million (US $ 600,000), and almost all loans were short term, with an interest rate of 84 percent per year in local currency. Depositors received about 24 percent annually in local currency (actually 36 percent, but the State apparently takes 12 percent in tax up front). 13. Both Armagro Bank (Agro Bank) and United Bank expressed an interest to participate in the ARSP credit line to on-lend to farmers, but neither of the banks have much experience in lending to small farmers. Armenian Development Bank 14. The bank was established in 1990 and has been licensed by the Central Bank to operate outside Armenia. Consequently, the bank has several of the main commercial banks in Europe as their corresponding banks, and 80 percent of the operation is on the transfer of funds in and out of Armenia (some US $ 1.5 million per month). Equity capital is US $ 360,000, total assets are US $ 780,000 (end September 1996) and loan portfolio US $ 260,000. All loans are short term, and mainly for trading. The interest rate presently charged is 62 percent per year in local currency. The management stated that the economic and political situation in Armenia does not justify making loans for longer than 12 months due to high risk. 15. Collateral for loans are mainly gold, other precious metals or stones and real estate. Repayment of loans is as high as 99 percent, according to the management. When a new law on collateral is passed and resolves currently unclear procedures in liquidity property pledged as collateral, the bank believes that the provision of security for the loans will be easier. 16. The bank has one office, under construction, in Yerevan. The building is impressive, and will have future space for rent. In total, the bank has some 1,000 clients, of which 70 percent are enterprises, in one form or another. The bank has no experience with farmers. Annex A Page 3 of 3 Agricultural Cooperative Banlk 17. The bank was established two years ago by the Ministry of Finance, Fanners Union and EU-TACIS, allocating the counterpart funds of US $ 2 million equivalent, obtained from sales of flour for bread. From the start the bank has got technical assistance from TACIS through Credit Agricole (France). Actual lending operation started in May 1996, and the bank has three Regional branches: Ararat branch (serving Ararat marz) Giumri branch (serving Shirak marz) Armavir branch (serving Armavir marz) 18 The cooperative bank is partly owned by the regional unions of village associations. In mid-1997, there were about 100 village associations. Only members of the village associations can apply for loans. The bank has established in each of village associations a committee (between 7-9 people) of senior farmers (belonging to village associations). Considerable work went into the selection of the committees. Each committee evaluates each credit application form. After an on-farm site visit to confirm the data of each application and after subsequent spreadsheet analysis, each application is reviewed for final approval. 19. ACBA lending program has been developed in three stages: Phase I: started in May 1996 involved 477 farmers, getting in average a loan of US $ 420 equivalent. Maximum loan amount was US $ 500 per farmer. Total amount disbursed was US $ 200,000. Phase II: started in September 1996 and covered more 1,200 farmers by the end of 1996. Maximum loan amount was US $ 600 per farmer. Phase III: started in March 1997, increased the maximum loan size to US $ 1,000 per fanner, and covered about 2000 farmers. In 1998, ACBA will consider providing loans to larger farms with maximum loan amount up to $25,000 and term up to 3-4 years. This is clearly contingent on ACBA's ability to borrow from World Bank and other sources, since an active effort to expand services at the village association level to include taking deposits is scheduled to begin only in 1998. The repayment rate of the first three lending campaigns was over 98%. Other financing to agro-industries 20. USAID is providing funds for financing of small and medium sized enterprises, including agro-processors. The implementation agency is Eurasia Foundation. The credit line of US $ 2,000,000 started already in 1995, and apparently a total amount of US $ 250,000 have been disbursed. Financial intermediary is Anelik Bank, and other commercial banks will be selected. The interest rate is 15 percent in US dollars to the final borrower for loans up to US $ 25,000 and for a maximum of one year. The cost of the fund to the financial intermediary is 2 percent. Disbursement is going slowly because collateral requirements are very stringent and each loan application has to be approved by the Eurasia Foundation in Washington. Annex B Description of Project Implementation Unit 1. The PIU is being formed on the basis of the existing Project Preparation Unit and will report to the Project Implementation Committee (PIC), chaired by the Minister of Agriculture. The head of the PIU would be the Project Director and principal link between the Bank and the Government. 2. The functions of the Project Implementation Unit (PIU) are to: (a) provide information to, and seek guidance from the PIC on all issues concerning progress in project implementation; (b) coordinate the recruitment of foreign and local consultants for implementation of the Registration, Credit to Farmers, Agrobusiness Development Center, and Agricultural Institutions Strengthening components of the project; (c) prepare semi-annual progress reports on the project to be submitted to IDA and the Government; (d) ensure that the financial accounts of each of the sub-components are audited annually as stipulated in the Credit Agreement; and, (e) maintain a consolidated account of all the project's components to be available to IDA's supervision missions. 3. The PIU will be composed as follows: (a) a Project Manager; (b) an Agricultu-ral Institutions Coordinator - Deputy Project Manager; (c) a Specialist for Credit to Farmers; (d) a Agricultural Institutions Specialist; (e) a Procurement and Contract Specialist; (f) an Office Manager; (g) Accountants (2); (h) Interpreters (2); (i) a Computer Specialist; (j) a Secretary; (k) an Office Manager Assistant; (1) Drivers (3);and (m) a Cleaning person. 4. The projected budget for the PIU over the four and a half years of the project is provided in the accompanying Annex B - Summary Table. ANNEX B - SUMMARY TABLE Project Implementation Unit PPF Year 1 Year 2 Year 3 Year 4 Total Vehicles 10.0 30.0 0.0 0.0 0.0 40.0 Minibus 20.0 20.0 4 W.D. Vehicles 10.0 10.0 20.0 Computer Equipment 16.0 16.0 'hotocopier 4.0 4.0 Portable Computer Set 4.0 4.0 Computer Set finc. UPS & Printer) 8.0 8.0 Offfice Fumishings & Equipment 10.0 10.0 Training Equipment 5.0 5.0 Office Refurbishment 10.0 10.0 rraining and Technical Assistance 37.5 30.0 30.0 15.0 112.5 Operating Costs 76.4 132.8 132.8 132.8 132.8 607.7 Office Rent 1.0 2.0 2.0 2.0 2.0 9.0 Office Operation Costs 9.0 18.0 18.0 18.0 18.0 81.0 Communications 4.8 9.6 9.6 9.6 9.6 43.2 Vehicles O&M 3.0 12.0 12.0 12.0 12.0 51.0 Other Equipment Depreciation 0.0 4.7 4.7 4.7 4.7 18.6 'Salaries 58.6 86.6 86.6 86.6 86.6 404.9 Project Manager 0.79 8.6 9.4 9.4 9.4 9.4 46.4 Credit Component Coordinator 0.57 5.1 6.9 6.9 6.9 6.9 32.6 Ag Inst. Coordinator- Dep. Manager 0.64 7.1 7.7 7.7 7.7 7.7 37.9 Ag. Inst. Specialist 0.50 2.5 6.0 6.0 6.0 6.0 26.5 Accountants 1.00 2.5 12.0 12.0 12.0 12.0 50.5 Office Manager 0.47 5.2 5.7 5.7 5.7 5.7 27.8 Procurement Specialist 0.50 2.5 6.0 6.0 6.0 6.0 26.5 Interpreters 0.86 6.9 10.3 10.3 10.3 10.3 48.0 Computer Specialist 0.36 3.9 4.3 4.3 4.3 4.3 21.1 Secretary 0.29 3.1 3.4 3.4 3.4 3.4 16.9 Manager Assistant 0.24 2.7 2.9 2.9 2.9 2.9 14.3 Drivers 0.86 6.9 10.3 10.3 10.3 10.3 48.0 Cleaning Person 0.14 1.6 1.7 1.7 1.7 1.7 8.4 Taxes 21.7 32.0 32.0 32.0 32.0 149.8 GRAND TOTAL 108.0 273.4 194.9 194.9 179.9 951.0 Page 1 Annex C Credit to Farmers Component Functions of Credit to Farmers Specialist (CFS) 1. The functions of the CFS are to: (a) Prepare Subsidiary Loan Agreements with ACBA and the ARSP credit line, potentially other PFIs that will on-lend funds under monitor their on-going eligibility in close consultation with the CBA Supervision Department, and propose remedies and improve corrective measures and sanctions on ACBA and other PFIs falling out of compliance with the terms and conditions of the Loan Agreements. (b) Develop and maintain the database, accounting systems and other information systems for managing and reporting on the line of credit. (c) Facilitate and monitor the technical assistance (TA) and other technical support provided to the ACBA and other PFIs. (d) Implement the disbursement and procurement procedures and arrangements, ensure compliance with PIU rules, and provide disbursement and procurement reports to the, PIU based on agreed schedules. (e) Examine the PFIs' sub-project accounting records, and arrange for regular audits of the project accounts. (f) Monitor interest payments from ACBA and other PFIs to the Ministry of Finance and Economy (MOFE) under the terms and conditions of the subsidiary loan agreements. (g) For PFI sub-loans above US $ 10,000, confirm that disbursement requests comply with all eligibility requirements and that the required legal documents and signatories are in order, and approve requests for disbursements under the sub-loan. (h) Conduct ex-post reviews, and report findings to PIU according to specific agreements, on ACBA's and other PFIs' accounting of the sub- loans and the utilization of the credit line. (i) Ensure that all other compliance requirements under the PIU line of credit are met. Annex C Page 2 of 3 Organizational Structure 2. The CFS will be situated within the PIU and will report to the Project Manager. The CFS will work in cooperation with the PIU Accountant and a support staff. In addition, the CFS will be supported by one foreign advisor who will assist in examining the ACBA and PFIs for participation in on-lending, monitoring their on-going eligibility and setting up systems and procedures for managing the line of credit. 3. The duties of the local staff and foreign advisor are as follows: (a) The CFS will be responsible for: Ex-post sub-loan eligibility reviews and reporting; Review of the standard sub-loan agreements of the banks with the farmers; Analysis and consolidation of the sub-loan portfolio performance reporting; IReferral to PIU on sub-loan applications requiring its approval for funding; * Referral to PIU for disbursement of the loans after proper verification of the documents and necessary approvals. (b) he PIU Accountat will be responsible for: Setting up the credit component's accounts, accounting system and related documentation controls; Requesting the PIU manager to make disbursements from "Special Account" based on documentation submitted from the PFIs; Arranging for audits on sub-loans project accounts above US $10,000; Monitoring interest payments from subsidiary loans; Reporting, as required, on project disbursement and collection performance under the credit line. (d) Local Support StUf will include a secretary. (e) The foreign Advisor will be responsible for assisting the CFS with: Examining the ACBA and PFIs for participation in the line of credit and monitoring their on-going eligibility for participation in the PIU project; Coordinating with other donors and the government on the technical assistance services being provided to ACBA and PFIs to Annex C Page 3 of 3 improve the institutional development of the banks who are participating and those who wish to meet and comply with the eligibility criteria; Qualifications of the Local Staf 4. In general, the qualifications of the local staff should be as follows: (a) The Credit to Farmers Specialist needs to be experienced and trained in the project finance, credit structuring and evaluation methodologies. Prior experience in credit administration department, or a strong training in this area, in a commercial bank would be necessary. (b) The Accountant needs to have an accounting degree and practical background, experience, and training in bank accounting preferably under international standards and applications. The Accounting Manager will also work closely with the PIU on procurement procedures and practices. 5. The SCF needs to be fully operational for the duration of the ARSP. However, after full disbursement of the credit line has been made, the SCF will have mainly monitoring activities. The foreign advisor financed by PIU is expected to be in place for 5 person-months during the first three years of the project. Extension of this contract will depend on project's needs and the availability of funds. Reporting Reqguirements 6. The SCF will report semi-annually on the sub-loan portfolio performance and progress, and the post-lending review for the compliance of the sub-loans with the terms and conditions as specified in the Subsidiary Loan Agreements. Key reporting requirements include, compliance of the ACBA and PFIs, status of the technical assistance provided and received by the ACBA and PFIs, and the ex-post facto reviews of the utilization of the line of credit. I i Annex D Strengthening of Agricultural Institutions A. Introduction 1. The ARSP Component for Strengthening of Agricultural Institutions focuses on the development of an agricultural technology system to serve the development of a science based, market-oriented agricultural sector that is responsive to the changing needs of the Armenia Republic. This agricultural institutions component of the ARSP project will provide support for the immediate reform and restructuring of agricultural research and the further development of education, extension, and information institutions. It is currently government policy that the functions of research, education and extension will eventually be integrated and managed by the Armenia Agricultural Academy. Therefore, the project is designed to provide for the systematic integration of all these functions by the year 2001. This is being accomplished at two levels, regional and national. At the Marz regional level, the process will begin immediately with full support of the development and recurrent costs of 10 Agricultural Support Centers to be managed by the Ministry of Agriculture. At the national level, this integration will take place over a four year period and be guided by a newly created Agricultural Scientific-Technical Policy Council (called the Agricultural Research Council-ARC in this document). 2. The institutions being strengthened under the ARSP are shown below as part of 5 sub- components: I. agricultural research, II. higher education, III. advisory services, IV. information services, and V. support services. B. Agricultural Research - Agricultural Research Council Background 3. There are 14 scientific-research institutes and several associated stations and farms under the Ministry of Agriculture. They are: (a) Scientific-Research Institute of Agriculture (Seed Production Association) (b) Scientific-Research Institute of Viticulture, Wine-making and Fruit-growing (c) Scientific-Research Institute of Soil Science and Agrochemistry (d) Scientific-Research Institute of Economics (e) Scientific-Research Institute of Vegetable/Melon (f) Scientific-Research Institute of Veterinary (g) Scientific-Research Institute of Animal Breeding (h) Scientific-Research Institute of Plant Protection (i) Scientific-Research Institute of Water Problems and Hydraulic Engineering (j) Scientific Production and Planning State Enterprise of Food (k) Scientific-Research Station of Industrial Crops (1) Scientific-Research Station of Apiculture (m) Scientific production State Enterprise of Silk-worm (n) Scientific production State Enterprise of Oil Plants Annex D Page 2 of 11 4. All the above research institutes have, for the last five years and more, been under considerable pressure due to enormous reductions in budgetary allocations. This has put their very existence at great risk. Low salaries have resulted in an outflow of both scientific and support personnel. In 1996, the 14 research institutes received budgets totaling $180,000 which provided support for 79 approved themes supporting 310 of their 517 research scientists. Moreover, the system of allocating all of these funds to identified themes of research means that the general research capacity of the institutes, and their flexibility to address requests for short- term research results, is very limited. Furthermore, scientific-research activities are not yet well- adapted to the privatization process that is being implemented in the agricultural sector. The transition to a more farmer oriented, applied type of research has not yet really begun since scientists are not yet fully aware of the needs of domestic farmers. Also, the scientific and the practical specialists working in the institutes have almost no links with similar research institutions and specialists from developed countries. 5. It is commonly agreed that the agricultural research system needs to be restructured and provided with sufficient investments and support to encourage scientists' initiative, agility, and ability to be responsive the needs of small scale private farmers. New processes for defining the research agenda and linking research with advisory services and farmers need to be developed to ensure the relevance of research for agriculture in the emerging market economy. Objectives 6. The project is designed to assist the Government of Armenia with the following objectives: a) To develop a sustainable national agricultural research system that involves good governance, a strategic plan, prioritized programs, adequate financing, improved facilities, an effective organizational structure, motivated human resources, reduced overhead costs and effective responses to national needs. This includes the development of five agricultural research centers to concentrate researchers, facilities and equipment for efficient investment and improved program management. b) To develop priority research programs to meet current transition and future market-oriented needs. c) To improve information flows among scientists (internal and external) and between Armenian scientists and farmer clients through the development of improved science and client linkage mechanisms (this objective is planned to be met through support of selected activities in other sub-components for AAA and ASC). Scope of the Sub-Components 7. The scope of the ARSP sub-component on agricultural research institutions includes the following activities: (i) the establishment and operations of an Agricultural Research Council (ARC) to guide and manage the national agricultural research system composed of five Research Centers with linkages to (and eventual integration with) the Armenian Agricultural Academy (AAA); (ii) the development of the five Research Centers; and (iii) support for priority research programs. While improvements in scientific information flows and the development of client farmer linkages are considered vital to an effective research system, these two activities are Annex D Page 3 of 11 planned and budgeted in other sub-components (higher education and support services). Categories for loan funding include facility improvement, equipment, vehicles, local and international training, technical assistance, program funds, and limited recurrent costs (communications, supplies, fuel, travel, repairs). 8. The Agricultural Research Council (ARC) - Project support is needed to facilitate the initial operations of a newly created (late June 1997) "Agricultural Scientific-Technical Policy Council" for the guidance and management of the new national agricultural research system. This Council (called the Agricultural Research Council in this document) is composed of primary stakeholders including: the Minister of Agriculture, Deputy Minister of Agriculture, Chief of the MOA Department of Science and Education, the Rector of the AAA, Directors of 7 research institutes, President of the Academy of Agricultural Sciences (AAS), Director of Agrogitaspure, Director of AgroPress, two farmer representatives and two industry representatives. While details are now being developed, it is proposed that the Council meet 6 or more times per year to: (1) advise on agricultural research, education and extension policy and strategies; (2) support strategic planning and priority-setting processes; (3) review and make recommendations on research, education and extension plans; (4) monitor and evaluate on-going activities; (5) facilitate program coordination among institutions in the national agricultural technology system; (6) identify opportunities for cooperation with external research institutions; and (7) facilitate the planned future integration of the research system into the Armenian Agricultural Academy (AAA) within 4 years. 9. The Council will establish an Executive unit to manage the agricultural research system on a day-to-day basis. A temporary Executive Director for the Council has already been appointed (the Rector of AAA). Other staff are likely to include a Deputy Director for Station Management, a Deputy Director for Information Management and support staff. A Task Force would be formed to initiate the process of change. The terms of reference for this Task Force would include: 1) develop a strategic plan for agricultural research; 2) define the sub-units of the five new Research Centers; 3) define positions for recruitment of staff for the new research centers; 4) establish a new program planning and formnulation system for agricultural research; 5) establish agricultural research priorities by use of a priority setting system; 6) make plans for renovations of facilities; 7) identify research equipment and vehicles to be purchased; and 8) establish linkages with Agrogitaspure, AgroPress and the AAA. Funds needed for Task Force activities include office facilities improvement, vehicles (including operations and maintenance), office equipment and supplies, communications and a computer network. All Task Force investments would be retained for use of the ARC. The project would provide operations support for ARC, including salaries for its 12 staff, for the entire four years of the project. 10. A strategic planning exercise (including preliminary program priority-setting) would be conducted by the Task Force beginning in 1997. This 6 to 9 month exercise has started as a pre- project activity with the establishment by Government of the ARC Executive unit and Research Centers and will continue into the project period. Support is being provided under the Project Preparation Facility for foreign technical assistance, local transportation, a computer, communications, supplies and materials necessary for the functioning of a task force. 11. Research Centers - the Ministry of Agriculture is establishing five new Research Centers (Field Crops, Vegetable Crops, Horticultural Crops, Livestock and Veterinary, and Soil and Annex D Page 4 of 11 Water) for organizing research. After a thorough review, it is been decided that the five newly developed Research Centers be constituted as follows: (1) Field Crops (at the facilities of the Plant Protection Institute including the activities of Agriculture/Seeds and Plant Protection Institutes), (2) Vegetable Crops (remaining at the location of the Vegetable/Melon Institute and including the activities of the Industrial Crops Institute), (3) Horticulture Crops (remaining at the location of the Viticulture Institute and including the activities of the Silkworm Institute), (4) Livestock and Veterinary (at the facilities of the Animal Breeding Institute with an animal health component), and (5) Soil and Water Management (at the facilities of the Soil Science and Agrochemistry Institute with a water management component). Other existing institutes will be privatized or dissolved. The number of research stations will be reduced and those retained would be managed by the ARC to serve the purposes of the entire system in the various agro- ecological zones throughout the country. 12. Investments are needed to improve selected facilities and equipment, primarily at five new Research Centers. Once decisions are finalized on the internal organization, location and allocation of space for units of the new Centers, funds for the improvement of facilities to an acceptable standard and for new laboratory, field equipment and transportation would be provided. The focus of the funding for this component will be on the rehabilitation of laboratories and greenhouses although some general facilities improvements will be included. Funding for laboratory, greenhouse and irrigation facilities and equipment is budgeted on the basis of standard units since overall decisions on facilities and detailed equipment lists need to be finalized. Funding for maintenance of these facilities is budgeted on a basis of 5% of cost per year over the 4 year period. The budget includes: rehabilitation of buildings and greenhouses; laboratory and office furnishings; laboratory, greenhouse, irrigation, field and office equipment; vehicles (including operations and maintenance); computer setups; and technical assistance. 13. Research Programs - Support is needed for specialized equipment and for recurrent costs of priority research programs and projects that are responsive to current and projected agricultural sector needs. Priority setting procedures will be used to set the research agenda for Armenia's needs and to select programs and projects for support. The priority programs will likely be commodity/resource based and will be executed primarily by scientists of the new Research Centers and the AAA. These programs will focus on applied and adaptive as well as maintenance type research. Approved projects responsive to the specific problems identified within each of these programs will be the primary mechanism for funding research program activities. Peer review by competent scientists would be used to determine scientific merit as appropriate. A travel fund would be maintained by the ARC to support international training and the participation of scientists in scientific meetings. Funds are needed to support priority research programs (major item), the purchase and maintenance of special equipment, international technical assistance, and the travel fund for participation in international training programs and scientific meetings. Cost Estimate for ARC, Research Centers, Research Programs: US $4,536,580 See Annex D Budget Tables I A-D for more details on costs, including both loan and Government financing. Annex D Page 5 of 11 C. Higher Education - Armenian Agricultural Academy Background 14. The educational institutions offering agricultural programs under the Department of Education and Science of the Ministry of Agriculture have already made considerable efforts to restructure the system and, therefore, now offer an education better suited to the current conditions prevailing in Armenia. According to a Government decision, the higher education institutes have moved to a three level system, i.e., B.Sc., M.Sc. and Ph.D. degrees. 15. In August 1994, the Agricultural and Veterinary Universities were merged into one: Armenian Agricultural Academy (AAA ). The AAA is currently associated with 4 regional colleges: (a) Nor Geghy Agricultural College (b) Yerevan Hydromelioration College (c) Stepanavan Agricultural College (d) Gavar Agricultural College 16. Training activities in the colleges are being organized by agreement with AAA in accordance with specialties and their curricula. New forms of ownership and economy as well as market relations have been taken into consideration when compiling the programs. About 20-30 % of the college students (those with high marks) are sent to the AAA after two years to continue their study to get a B.Sc. degree. 17. The AAA and its 4 associated colleges have about 568 teachers and 6,007 students. There are 6 Faculties at the AAA operating in accordance with the requirements of the reforms being realized in the agricultural sector. They consist of 44 chairs where specialists are prepared in 25 professions instead of the former 17. The AAA and four colleges have already been partially restructured, but they need considerable further assistance to be able to attain acceptable international educational standards. Modern technological information is almost totally absent in many subjects and investments in this field will bring considerable benefits to the educational system. The Academy library can only meet the needs of a small fraction of its staff and students in terms of textbooks, scientific literature and magazines. An outdated publishing complex attempts to prepare low-cost education materials and textbooks for students. Objectives 18. While the needs of AAA are many, there are two major objectives for support to the AAA under ARSP: (I) to improve access to scientific and technical information for students, teachers and researchers (AAA and ARC); and, (ii) to improve the ability of AAA to produce low cost educational and scientific publications. Scope of the Sub-Component 19. The scope of the agricultural higher education sub-component is confined to the AAA. The two activities to be supported are improvements in (1) the agricultural library, and (2) printing facilities. These are described below. Annex D Page 6 of 11 20. Library - The library is the primary information center for students, teachers and researchers. The project will support the modernization of the Library including up-to-date literature acquisition and improved access for all AAA students and teachers. In addition, there is a critical need for improving information flows between and among scientists (particularly with those outside of Armenia). Improved access to external scientific information sources would be accomplished through the acquisition of international scientific literature, electronic linkages (INTERNET) to knowledge centers, computer storage and retrieval systems, translation services, and publication services. Support will go primarily to the AAA to manage the research information system for both AAA and the ARC research centers (through computer linkages). This centralization of agricultural information is cost-effective and prepares for the eventual integration of research centers into the AAA within the next 4 years. Funds are needed for the rehabilitation of rooms, equipment, computer setups, purchases of books and journals, communications, supplies, special staff, international technical assistance, and participation in local and international training programs. 21. Printing Facilities - The AAA has a tradition of in-house publishing of textbooks, research publications and other agricultural materials useful for the agricultural community in general. This gives low-cost access to educational materials needed by students and allows for the immediate publication of technological information for others. Support will be provided to improve the current publishing complex at the AAA in order to increase its output of specialized literature, text-books, magazines, etc. Cost Estimate for Higher Education: US $687,700 See Annex D Budget Table 2 for more details on costs, including both loan and Government financing. D. Agricultural Advisory Services - Agrogitaspure Background 22. "Agrogitaspure" (Agricultural Extension Service), which was established in 1992 under the Ministry of Agriculture, is still in early stages of development and is currently providing advisory services in the each of the 38 regions of 10 Marzes (provinces) of the Republic of Armenia. Currently, 39 people are engaged in the Yerevan Central Headquarters whereas in the regional-agencies there are 321 specialists employed, of which 209 are rural agents (170 full- time and 39 part-time). 23. According to their area of training, these agents comprise 191 agronomists, 49 animal breeders, 28 vets, 8 land surveyors and drainage experts, 16 engineer-technicians, 24 economists, and 5 lawyers. The Extension Service's information areas cover mainly the organization of agricultural production, pest and weed control, crop and animal health care, and produce processing and storage. Activities include: (a) Organization and realization of training courses in the newest local and foreign achievements regarding agricultural management, production, processing and sales; Annex D Page 7 of 11 (b) Organization of exhibitions of highly effective technologies and agricultural inputs; (c) Preparation and dissemination (using local press, radio, and TV) of information on techniques and methods to produce introduced commodities; and (d) Development and dissemination of programs to increase production efficiency and farm profitability. 24. The advisory services are delivered free of charge through the extension specialists, as well as through the mass media provided by the Editorial Center of "AgroPress" under the Ministry of Agriculture. During 1996, 28 newsletters with 10,500 issued copies were provided to 38 agencies, and 30 articles were published in 11 issues of the "AgroPress" newspaper. In each of the regional agencies, 3 scientific-practical workshops were organized and 8 TV programs on 21 subjects were broadcast. However, due to the lack of financial resources and other means required for transportation, office operations, audiovisual equipment and training, the efficiency of the Agricultural Extension Service in terms of the full-scale implementation of the above-mentioned activities has been limited. 25. Recently, it was decided to establish Marz (provincial) structures of Agrogitaspure to significantly raise the work efficiency of the overall extension system and, thereby, positively assist the newly created peasant farmers to increase their productivity. In 1997, support was provided by the USDA to furnish 3 Marz extension offices with modern technical means and necessary equipment and transport. Recently, it was decided that these 3 Marz extension centers will become multi-purpose Agricultural Support Centers including extension, adaptive research, information and market support units. Since the ARSP will support the development of these centers (see Section V below) and Agrogitaspure will utilize these centers, direct support for Agrogitaspure is limited to technical equipment for the main office of Agrogitaspure and the provision of transportation for 32 regional offices. Objectives 26. The objectives of this sub-component are to improve the office related equipment required by the headquarters of Agrogitaspure in order to manage a more decentralized system and to increase the efficiency and effectiveness of Agrogitaspure service activities at the regional level. Scope of the Sub-Component 27. In view of the recent decision to develop multi-purpose Agricultural Support Centers (ASC) and that the ARSP will play a major role in supporting the development and operations of these new Centers, direct support to Agrogitaspure is limited to the following two areas. 28. Agrogitaspure Headquarters - the creation of the Marz level offices of Agrogitaspure in the newly created ASCs is a decision to decentralize Agrogitaspure and make it more responsive to the needs in each Marz. This means that communications and support from headquarters needs to be efficient and responsive. Accordingly, the project will provide a minibus for Annex D Page 8 of 11 seminars and training, a computer set-up and modem for networking with the Marz offices, a phone/fax machine, a photocopier and international technical assistance. 29. Regional Transportation - One of the most limiting factors for extension agents is the ability to travel to farmers to provide mandated services and to travel to the Marz centers for meetings and seminars. Accordingly, the project will provide one vehicle, including maintenance and operating costs, for each of 32 regions to support the 3 to 4 agents employed at that level. Cost Estimates for the Agricultural Advisory Services Component: US $1,256,960 See Annex D Budget Table 3 for more details on costs, including both loan and Government financing. E. Information Services - AgroPress Background 30. Taking into account the reforms that are being implemented within the agro-food system and prioritizing the important role of information in it, an "AgroPress" Editorial Center was established in January 1996 through the integration of several editorial units. Currently, AgroPress is publishing a magazine called "Agroscience" and a newspaper called "Agrolratu," and is preparing and delivering radio broadcasts and TV programs. A total of 6 Agroscience issues were published in 1996 and, due to the fact that the magazines also include the English and Russian texts of the scientific articles, it has become possible to cooperate with the editorial units and scientific centers of 37 countries. The newspaper "Agrolratu" is issued 3 times monthly, with 2,000 copies, and includes advisory, informational and market information.. The radio programs are broadcast once a week with 15 minutes of duration and TV programs are shown twice a month with 20 minutes of duration. During the busy agricultural season, the intensity of programs increases. 31. Agricultural sector reforms and agricultural industrial privatization have placed new requirements on AgroPress, particularly in terms of its management and development. Quality infornation is necessary for both the Government and the agricultural sector . At present, there are serious difficulties in the process of obtaining and disseminating information on the agricultural situation throughout Armenia. Because of the lack of the necessary equipment, the link with the Marz (province) offices of AgroPress is not stable. For the republic with more than 320,000 farm families, the current 2000 copies of "Agrolratu" newspaper distributed monthly is insufficient. The major constraint to distributing the necessary volume of these publications and increasing the frequency of radio and TV programs is the timely access to printing and audio- visual studio facilities. Objectives 32. The objectives of this sub-component are to increase the capability of AgroPress to produce relevant and timely publications and TV programs and to ensure that key persons get access to science and farm level information. Annex D Page 9 of 11 Scope of the Sub-Component 33. AgroPress has proven to be a vital component of the agricultural technology system and has the potential for being a powerful instrument for promoting the transition to the market economy. AgroPress plans to have 7 units: newspaper, science magazine, farmer magazine, analytical information service, radio studio, TV studio and publishing house. The scope of work for the ARSP is to support the development of the TV studio, the enhancement of the publishing house and, indirectly, the science and farmer magazines. 34. TV Studio - AgroPress is currently dependent on outside services for the production of agricultural TV programs and often is unable to edit video materials received from other sources. The ARSP will provide AgroPress with the equipment and training needed to operate a TV studio and a vehicle. This will enable AgroPress to be more pro-active in producing timely and relevant educational materials for farmers and the general public. 35. Publishing House - AgroPress already has some equipment for printing, but unit costs are high due to the type and condition of this equipment. The ARSP will provide to AgroPress the necessary equipment to upgrade the publishing house resulting in the ability to reduce costs. Included are a Ryzograph printer, a computer set-up and training for AgroPress staff. 36. Subscriptions - AgroPress is currently producing an excellent Agroscience magazine allowing agricultural scientists to publish results of their research in a timely fashion. Since the capability to produce this magazine already exists, but funds are insufficient for printing and distribution, ARSP will guarantee distribution of Agroscience to 600 agricultural scientists in the country by purchasing 4 year subscriptions for each of them. In addition, AgroPress wants to resurrect and revise the farmer magazine (to be called Nor Ghyukh) which was started in 1992 and ceased in 1995 due to financial problems. This magazine is designed to provide professional advice to farmers, future farmers, land owners and agribusiness operators. To encourage its publications, ARSP will purchase 1,200 subscriptions for 4 years and make them available to agents of Agrogitaspure on the basis of farmer population in their respective regions. Cost Estimates for the Information Services Sub-Component: US $472,000 See Annex D Budget Table 4 for more details on costs, including both loan and Government financing. F. Support Services - Agricultural Support Centers Background 37. An Agricultural Support Center (ASC) is a Marz level office which provides coordination and basic infrastructure for government research, technical advisory, information and marketing services to farmners. Four Ministry of Agriculture units, therefore, will have representatives in each Center: Agrogitaspure, Agro-Press, the Agricultural Research Council, and Agro-Marketing. Through these representatives, ASC activities include: (a) The organization of adaptive research for farmer evaluation of technology; Annex D Page 10 of 11 (b) The provision of advice to farmers on alternative technologies and methods; (c) An increase in the flow of information to and from farmers; and, (d) Assistance to farmers in developing business plans for credit and marketing. 38. With the distribution of a large portion of agricultural lands to over 300,000 private persons and additional lands scheduled for future allocation, the need for technology services in rural areas has become necessary, if not urgent. The initiation of services to new farmers was through the development (with the assistance of the USDA) of Agrogitaspure as the MOA's advisory services unit. Agrogitaspure has recently established offices in 3 Marzes with assistance from the USDA which terminates this year. The current plan is to convert these three Agrogitaspure units to multipurpose support centers by adding the functions of adaptive research, information, and market support to advisory services. This would be followed by the establishment of the remaining 7 Agricultural Support Centers combining all technology services in each Marz with centralized support systems. 39. A Marz ASC Council, consisting of representatives of farmers and farmer associations, agribusiness, Marz government, and regional government agencies, would guide the operations of the ASC. A coordinator is be selected on a competitive basis by the Ministry of Agriculture to manage the office facilities, assure program coordination, and maintain linkages with Marz Government. This person will also be fully responsible for all ARSP activities relating to the funding of the ASC. 40. The services of the ASCs would allow for the establishment of computer networks to link Yerevan units with each of the Marzes, the economical use of vehicles and the essential office support systems needed by each unit. Not only can operational economies be achieved, but also, there is considerable opportunity for program cooperation and linkages at the local level to better serve farmer needs. Objectives 41. The objectives of this sub-component are to offer coordinated national services to farmers in each Marz, to reduce the overhead costs of these services, and to link national services with Marz objectives and programs for agriculture. Scope of the Sub-Component 42. The operations of the Agricultural Support Centers are central to the design of the component on Strengthening of Agricultural Institutions of the ARSP. This is one important point where existing agricultural technology institutions interact with their clients, the farmers. Since these are new units designed to strengthen the capacity of existing institutions to serve farmers, ARSP will provide both investment and operations costs. The scope of work, therefore, is as follows: 43. ASC Development - the ARSP project will be responsible for creating 7 new Marz ASCs in addition to the 3 already established through USDA funding.. Each ASC will be located in an existing facility in the Marz which will be renovated for this purpose. Each Center will have a minimum of 4 rooms, a vehicle, two table computer set-ups, one laptop, photocopier, phone/FAX, modem, training materials, and other materials as needed. Annex D Page 11 of 11 44. ASC Operations - ARSP will provide the recurrent costs of the overall support services of all 10 Centers for the first 4 years subject to agreement by the Ministry and Agriculture and the Marz government to support them thereafter. This support includes salaries of the I I staff of the each of the Centers (see chart below) as well as staff training activities. Operations of the Centers include the development and operation of a computer based network to provide communications with information sources, headquarters offices, and other Marz Centers. The actual program activities of the 4 MOA agencies in each of the Marz centers, however, will be the responsibility of these respective agencies 45. Each Marz ASC will have the following staffing pattern: Title Number ASC Coordinator 1 Research Liaison Officer (ARC) I Advisors (Agrogitaspure) 2 Information Officers (Agro-Press) I Market Specialists (Agro-Marketing) I Computer operator 1 Finance officer 1 Technical staff (driver/keeper/cleaner) 3 Total 11 Cost Estimate for the Agricultural Support Centers Component: US $1,621,150 See Annex D Budget Table 5 for more details on costs, including both loan and Government financing. ANNEX 0- SUMMARY TABLE Agricultural Institutions Component PPF Year 1 Year 2 Year 3 Year 4 Total Velhicles 60.0 440.0 500.0 Vehicles for Agricultural Institutions 0.0 280.0 280.0 Vehicles for Ag ricutitural Research Council 10.0 10.0 20.0 Vehicles for Agricultural Support Centers 50.0 150.0 200.0 _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Cornputer Equipment 69.5 289.5 31.0 16.0 8.0 414.0 Conputer and Publishing Equipment for Ag Inst. 206.5 31.0 16.0 8.0 261.5 Comnputer Eq. for Ag Research Council 11.5 4.0 15.5 Computer Equipment for Ag Support Centers 58.0 79.0 137.0 _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Office Equipment & Furnishings 10.0 128.0 12.0 12.0 162.0 Office Furnishings for Ag Inst. 72.0 12.0 12.0 96.0 Office Equipment for Ag Research Council 10.0 10.0 Office Equipment for Ag. Support Centers 56.0 56.0 Tralining Equipment | 25.0 73.8 98.8 Training Equipment for Ag Institutions 48.8 48.8 Training Equipment for Ag Support Centers 25.0 25.0 50.0 = ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I Lab and Field Equipment (incl. Irrig. Eq.) 0.0 320.0 380.0 120.0 4.0 824.0 Rehabilitation 6 _ 65.0 390.0 165.0 30.0 =O650.0 Refurbishment of Ag. Institutions (incl. Greenhouse) 290.0 165.0 30.0 485.0 Refurbishment of Ag Research Council 25.0 25.0 Refuirbishment of Ag Support Centers 40.0 100.0 140.0 Training and TA 63.0 217.5 169.0 107.5 61.5 618.5 Trairning for Ag Institutions 79.5 79.5 69.0 39.0 267.0 TA ifor Agricultural Institutions 54.0 51.0 16.0 121.0 Training for Ag Research Council 45.0 7.5 7.5 7.5 7.5 75.0 TA lFor Ag Research Council 18.0 38.0 56.0 Training for Ag Support Centers 22.5 15.0 15.0 15.0 67.5 TA lor Ag Support Centers 16.0 16.0 32.0 Subtotal 292.5 1858.8 757.0 285.5 73.5 3267.3 Operating Costs _ ___ 68.7 1293.6 1309.8 1317.2 1317.8 5307.1 Research Themes 200.0 200.0 200.0 200.0 800.0 O&M - Ag Institutions 14.8 165.8 182.0 189.4 190.0 742.2 Research Literature & Library Publications 49.8 49.8 49.8 49.8 199.2 Other - Ag Institutions (Imcl salaries) 598.9 598.9 598.9 598.9 2395.4 Personnel - Ag Research Council 8.8 35.0 35.0 35.0 35.0 148.8 Maintenance - Ag Research Council 2.6 11.5 11.5 11.5 11.5 48.5 Other - Ag Research Council 2.0 8.1 8.1 8.1 8.1 34.4 Personnel - Ag Support Centers __ _ 19.3 77.0 77.0 77.0 77.0 327.3 D&M Ag Support Centers 14.2 119.0 119.0 119.0 119.0 490.3 Other - Ag Support Centers 7.1 28.5 28.5 28.5 28.5 121.1 GRAND TOTAL 361.2 3152.4 2066.8 1602.7 1391.3 8574.4 Non-IBank Financed 9.2 635.5 635.5 635.5 635.5 2551.0 WB Loan 352.1 2517.0 1431.4 967.3 755.9 6023.5 Ilutdget TIable IA Agricultural Researchl Council Agricultural Research Sub-Coinponeiit, ARSP, Republic of Armenia ($000) Units 1997 1998 1999 2000 2001 Totals Items Type Cost # Cost # Cost # Cost # Cost # Cost # Cost Investnent Vehicles each 10.00 I 10.00 I 10 00 2 20.00 Computer each 3.00 2 6.00 1 3.00 _ 3 9 00 Printers each I .00 2 2.00 1.00 3 3.00 Photocopier each 3.00 1 3.00 1 _ 3.00 Phonie Fax each 0 50 1 0.50 1 0 50 Office Furnishings roomIl 2 00 5 10.00 _ . 5 10 00 Refurbishinig 100111 5 00 5 25.00 _ 5 25 00 Technical Assistance, Internatonal D 16.00 i 16 00 2 32.00 3 48 00 Technical Assistance, Local pm 1.00 2 2.00 6 6 00 8 8 00 Training & Seminars, International pm 7.50 6 45.00 1 7 50 I 7 50 _ 7.50 I 7.50 10 75.00 Subtotal Investment 119.50 59 50 7.50 7.50 7.50 201.50 Recurrent from loan') ARC Salaries /yr 35.00 0.25 8.75 _ 1 35 00 _ 35.00 1 35.00 I 35.00 4.25 148.75 Vehicles M&O each 2.5 0.25 0.63 2 5.00 2 5.00 2 5.00 2 5.00 2 20 63 Equipment Maint total 5% 0.25 0.27 _ 0.47 I 0 47 I 0.47 1 0.47 4.25 2.14 Communications /yr 3.00 0.25 0.75 ___ 3.00 I 3.00 1 3.00 1 3.00 4.25 12.75 Supplies /yr 3 00 0.25 0.75 1 3 00 I 3.00 1 3.00 1 3.00 4.25 12.75 Subtotal Recurrentfrom loan 8.00 46.47 46.47 46.47 46.47 197.02 Recur-r-entfifrom GOA 37% payroll tax /yr 8.10 0.25 2.03 1 8.10 I 8.10 1 8 10 1 8.10 4 25 34.43 Suibtotal Recurrentfrom GOA I _ 2.031 8 10 8.10 ] 8.10 8.10 34.43 Total I _ 129.531 114.07 62.07 = 62.071 62.07 432.94 1) Recurrent costs are calculated for 3 months 1997. Page 1 Budget lable Ili '-esearchi Cenerxis* Agricultur al Research Stib-Conipoiietit, ARSI, Republic of Armenia ($000) Units 1997 1998 1999 2000 (2 001 Totals Items Type Cost # Cost # Cost # Cost # Cost # Cost # Cost Investment Vehicles each_ 10.00 6 60.00 6 60 00 ComDputec eacih 3.00. 12 36.00 6 18 00 4 12.00 2 6.00 24 72 00 Printers each 1.00 12 12.00 6 6.00 4 4.00 2 2 00 24 24.00 Photocopier each 3 00 61 18.00 6 18 00 Phone Fax each 0.50 _ 6 3.00 6 3.00 Furnishings room 2.00 18 36.00 6 12.00 6 12.00 30 60.00 Laboratory / Equipment/ each 50.001 4 200 00 6 300.00 2 100.00 12 600.00 Field / Equipment/ set I S 00 4 60.00 2 30 00 _ 6 90.00 Irrigation / Equipment! set 10.00 31 30.00 2 20.00 5 50 00 Greenhouse / Refurbishmnent/ each 35.00 I 35.00 I 35 00 2 70 00 Refuirbishiings, linternal roomi 5 )00___ 1 8 90.00 6 30) 00 6 30.00 130 I 50 00 Refurbishing, external total 100.00 I 100 00 1 100.00 _ 200.00 Technical Assistance, Local pm 1.00 6 6.00 3 3.00 9 9.00 Subtotal Investment 6 _ 686.00 554 00 158.00 8.00 1406.00 Recurrent Vehicles M&O each 25 6 15.00 6 15.00 6 (5,00 6 15.00 6 60 00 Equipment Maiitenance total 5% 1 19 75 i 39.05 1 45.45 I 45 85 4 150.10 Communications /yr 3 00 = _ 3.00 3 3.00 1 3.00 1 3 00 4 12 00 Supplies /yr 3.00 _ 3.00 I 3.00 I 3.00 I 3.00 4 12.00 Moving costs each 2 50 6 15.00 so _ __ 6 15 00 Subtotal Recurr ent 15.00 _ 40.75 6 60.05 66.451 _ 66.85 249.10 Recurrent from GOA _ . . . . Salaries /scientists/ /yr 0 60 I 50 90.00 ISC 90.00 ISO 90.00 150 90.00 150 360.00 Salaries /all other/ /yr 0 48 350 168 00 350 168.00 350 168 00 350 168 00 350 672.00 37% payrolltax /yr 95.46 1 95.46 1 95.46 1 95.46 1 95.46 4 381.84 Subtotal Recurrentf iam GOA 353.46 353.46 353.46 353.46 1413.84 Total .1_ 15.00 l080,21 _ 967.51 577.91 428.31 3068.94 Page 2 Budget Table t C Rescai rch Progranis Agricultural Rcscarch Sub-Component, ARSP, lRepublic of Armenia ($000) Units 1997 1998 1999 2000 2001 Totals I_tems Type Cost # Cost # Cost # Cost # Cost # Cost # Cost Investment TIheine /Equipment/ set 2.00 _ _ 15 30.00 15 30.00 10 20.00 2 4.00 42 84.00 Technical Assistance, International pm 16.00 1 16 00 1 16.00 1 16.00 _ _ 3 48 00 Tiaihing & Seminars, International Dm 7.50 4 30.00 4 30.00 4 30.001 12 90.00 Subtojal Investmient .__ 76.00 76.00 66.00 = 4.00 _ 222.00 Recurrent _ T hemes Support eachi 2 00 100 200.00 100 200.00 100 200.00 100 200.00 400 800.00 Equipmiienlt Maintenance total 5% 1 1 50 1 3.00 1 4.00 I 4 20 4 12.70 Suibtotal Recurrent = _ 201 50 203.00 204.00 204.20 812.70 Total 277.50 279.00 _ 270.00 208.20 1034.70 Page 3 Budget T'able D Agr-icultur-al Resea rch ,Total Agr-icultural Researchi Sub-Component, ARSP, Republic of Armenia ($000) ________ Uh~~~~~~~~~~~~~~~plits jq997 < - 1998 - 1999 .20(0(- 2001 - Total$ 1t~~~~iii ~ ~ ~ -D A costt Cost ___ Cost # Cos9t # Cos Cost I ivcstiiient Vehiicles cacti 100( I 10 00 7 70 00 0 0 0 00 08 8()0 Comipulter each 3 00 2 6 00 13 39 00) 6 18 00 4 12 00 2 6 00 27 81 00I Priniters eachi - 00 2 2 00 12 i3 109 6 6.00 4 4.00 2 2 0(1 27 27 00 Plhotocopier cacti 3 001 I 3 00 6 18 00 I 0 0 00 I ,0 7 21.00 Phione Fax eachi 0 501 1 0 50 6 3 00 0 .00 0 0( 00 1 .0 7 3 50 Office Ftirnishinigs rooim 2.001 5 tO00 18 36 010 6 12 00 6 12.00 0 .00 35 70 0(1 Laboratot)' /Equipmient/ cacti 50 00 0 00 0(1 4 200 6 300 2 100 0 00 00 1 2 600.001 Thcenic /Equipmient/ set 2.00 ____ I 3000) 15 30 00 10 20 00 2 4 00 42 84 00 Field /Eguipincicn/ set 15 00 tI 00 0 001 4 00 60 00 2 00 30 00 0 00 0C 00 00I M00 6 90).00 Irrigatioin /Eguipment/ set 10 00 0.00 0 00 3 00 30 00 2 00, 20 0(1 0 00, 0.0 0O 00 0.00I 5 50 00 Greeinhouse /Refiirbishing/ eachi 35 00 (00 0 00 oo 1.00 35.00 1 00 35 00 0.00 0 00 (1.00 (100 2 70).00 Refurbishing, Internal roomn 5 001 5 25 (10 18 9(0 6 3(0 0(1 6 3(100 C) (1.00 35 175.00 Refurbishings, External total 100 (1(I 0(10 (1 00 1.00 1(((( I )0 1(10.00 0 00 ((10 (1.0 (1 0(1 0 00 200.00 Techinical Assistance, Initernational ,pill 160(1 1 16 0( 3 48 00 1 16.0(0 1 16 (1( 0 0.00 6 96(1(1 Techniical Assistance, Local . .piii I 00 2 2 001 12 12(1(1 3 3 (1( 0 0(( ( 1 (1.00 17 17.00 Training & Seminiars, International pil 7 51) 6 45 00 5 37 5(1 51 37 50 5, 37 5(1 1 7 501 22 165.0(0 .W,btoxa1Thv~~~i~~netit - - - 119.5(1 82150 - G37.~~~~561 . 2-3150 _____ ~'95"O" , , 1829 5 ARC Salaries Ir 35.00 0 25 8 75 1.0(1 35(1(1 I10(1 35 00 1 00 35 00 1 00 35 00 4.25 148 75 Vehiicles M&O eachi 2 5(1 (125 0.63 8 20 00( 8 20.00 8 20.0(1 8 20 00 8 8(1 63 Equipment Maint,total 5% 0 25 0.27 I 1 21 72 1 42 52 1 49 92 1 50 52 4,25 164.94 Comimunications fyr 3 (10 0 25 0.75 I 6 1)0 1 6 00 I1 6.00 1 6 001 4 25 24.75 Supplies________________ yL 3 (10 0 25 0,75 1 6 0(1 I 6.00 1 6.00 1 6.00 4 25 24.75 Moving costs eachi 2.501 6 15(10 ____ 6, 15.0(1 Thiemies Support cacti 2 00 IN__1(( 2(1( 00 10( 200.00 100 2001,00 100 2(1( 00 401) 800 0(1 __ __ _ __ _ __ _ __ _ __ __ _ _ _ _ _ __ _26,14 .2&8.72 ,I9.~5z , 3hS9Z, 3 Recurrentfro;n GOA- Salaries /scienitists/ ___r_0_60150 90 0(1 150 9(1.0 150, 90.00 150 9(100 150 360.0(1 Salaries fall other! __r____48 350 168 (1( 35(1 168 0(1 350 168 Ot) 35(1 168 0(1 350 672 00 3 7', pai. r-oll lav 11 I025 2(013 __ I 1(13 56 1 10)3 56 I 10)3 56, 1 1(03 56 4- 251 416.7 Sabiwa/ fteirjreM fiUrw,i (10 2.0~3 ___ 361A6 ____ 3 6 L.6 .16L 561 361.$6 i___ 448x2 Page 4 Budlget Table 2 Ar-menian Agr-icultural Acadlemy (AAA) ($000) VUuits 397 198 1909 __ flO 20010 Totals _____________________ Tz pe Cos # Cost # Cast It Cost C st # Cast # Cost Investment Minibus /AAAI cach 20 00 1 2(0(00 _ - 20 00 Vchicles /Libran/ cacl I() (10 _ I() I 1 00 1 0( Computcr /Libranr/ each 3.00 2 6(00 2 6.0( 4 12.0() Printers /Librar)/ cach I ()( 2 1 0(1 2 1.0( 4 2 00 Computer accessories /Library/ set 0 ( I I I_ _ 1 ()00 1 I (0( Phone Fax /Library/ each ().5() _ () 50 = = = 1 0.5( Furnishings /Library/ rooni 6.00 ( 6 36.00 6 36.00 Computer /Publishing! each 3 00 2 6 00 ( 2 6.0( Scanner /Publishing/ each 0 70( 2 1 4( 2 1 40 Printer /Publishing/ cach 2 010 I 2 ()(1 1 2.00 E-print 10()() /Publishing/ each 5( ()() I (1 ()O _ _ 5().()( Binder (Publishing/ cach 14 00 I 14 (1(1 _ 1 14 ()( Cutiter /Publishing/ Cach I 5() 1 I 5() _ _ _ 1.50 Copier /Publishing/ eacih 6 ()() 1 6 (0(0 i 6.()( Laminator (Publishliiig/ cach 2 5(1 I 2 50) = = 1 2.5(0 Refurbishliing /Library/ room 5 ()( 6 3(0 00 6 3(0 0( Refurbishing /Pubhsling/ room 5.00 7 35.0(0 7 35.00 Technical Assistance. Inter. p/ni 16 00 1 16 ()0 1 16.00 2 32.00 Training & Seminars, Intcr p/m 7.50( _4 3((.00( 4 3(0.00 4 3(.0(10 4 30.00 16 120.00 Training & Seminars. Local p/m 1.5(1 8 12.0(0 8 12.00 6 9 ()(1 6 9.((1 28 42.00(1 Sublbo1l 4Wvest#in_ 280.90 ____ 39.OG ____ 39.00 _ 423.90 Recurrent Internet Interpreter /yr 600 _ 1 6.00 1 6.00 1 6.00 1 6.00 4 24.0(0 Books & periodicals /yr 25 ((0 1 25 (i(i 1 25.00 1 25 0(0 1 25.00 4 1((1.(00 Traiiiing Materials /yr 5( I 5 0( I 5( 1 5 ()() 1 5.00 __4 20 (10 Vehicle M&O each 2 5( 2 5 00( 2 5 00 2 5 0(1 2 5.00 2 20.00 Equipmient & maineinaice ,L total 5% I _ 2 2(1 1 2 601 1 2.6(1 1 2 60 4 10.(0 Equipment & maintenance ,P total 5% 1 4 20 1 4.20 1 4.20 1 4 20 4 16 80 Communication /Library/ /yr 6 00 I 6 ()() 1 6 00 1 6 )(It 1 6 00 4 24 00 Comnimunication /Publishing/ (yxr 3()0 _ 1 3.00 1 3.00 1 3.00 1 3.00 4 12 ()() Supplies /Library/ /yr 3 (1 1 3 (1( 1 3 0(1 1 3 (1( 1 3 (0 ___ 4 1 12 (00 Supplies /Pubishliuig /yr 5 ((( I 5 ()() 1 5.00 1 5 ()(I 1 5 ()( _ 4 2(1 (1(1 Iinstallation /Publishiiig/ /Xr . 5 (( 5 ((1 __ .. ...... I 5 ) ( Subioial Recurk-ent 69. 40 64.80 64.80 64,80 263.0 Tut~I ., - . - - - - ......D ............. ... =N 770 Page 5 Budget Table 3 AGROG ITASPURE ($000) U Unils 1997 1998 1999 2000 2001 l'otals Items Type Cost #t Cost # Cost # Cost # Cost # Cost # Cost Investment Minibus each 20 00 = 20.00 = 3 20.00 Vehicles eachl 5.00 32 160.00 - 32 160.00 Computers each 3.00 I 3 00 I 3.00 Printei s each I.00 I 1.00 _ _ I 1.00 Phone Fax each 0.50 - 0.50 _1 0.50 Modein eachi 0.30 I_ 0.30 - __ 0.30 Photocopiers each 3 00 C 3.00 - _ 3.00 Technical Assistance, International pm 16.00 1 16.00 1 16.00 2 32.00 Subtotal hivestinewt_ 203.80 16.00 _ 219.80 Recurrent from loan Vehicle M & 0 each 2.00 33 66.00 33 66.00 33 66.00 33 66.00 33 264.00 Equipment Maintenance total 5% I 0 39 I 0.39 1 0.39 1 0.39 4 1.56 Coniliunications /yr 3 00 1____ _ I 3.00 i 3 00 I 3.00 1 3.00 4 12.00 Sutblotal Rec fromn loan _ 69.39 _ 69.39 69.39 69.39 277.56 Recurrent from GOA I__ Salaries /yr 105.00 1 105.00 i 105 00 I 105.00 1 105.00 4 420.00 37% payroll tax /yr 38.80 I 38.80 I 38.80 1 I 38.80 1 38.80 4 155.20 Trips /yr 9.00 _ 9.00 I 9.00 1 9.00 I 9.00 4 36.00 Public utilities fyr 8 70 _ I 8.70 I 8.70 I 8.70 I 8.70 4 34.80 Repair & maint. of premises /yr 12.00 i 12.00 1 12.00 1 12.00 1 12.00 4 48 00 Other office expenditures Iyr 6 70 _ 1 6.70 1 6.70 1 6.70 I 6.70 4 26.80 Demonstrations & exibitions Iyr 9.70 - 9.70 1 9 70 1 9.70 1 9.70 4 38.80 Subtotal Rec. fronm GOA ___ 189.90 189.90 189.90 189 90 759.60 Totals .. 463.09 275.29 259.29 259.29 - 1256.96 Page 6 Budget T'able 4 AGROPIIESS ($000) ___ __ ___ __Unit- 19'7 1f99- 1999 211011 20011 Tatals __ _ _ __ _* Type t$200,000 Goods: n.a. Goods: <$200,000 Goods: n.a. Refurbishment Technical Technical Services: Technical Technical Services: n.a. Services:>$200,000 <$200,000 Services: n.a. No objection on budget for recurrent costs 2. Prior Review all first two for each first n.a. yes procurement category Element (Consultant Services) QCBS QBS Sole Sourcing - Least Cost Other methods none 3. Procurement method thresholds >$200,000 <$200,000 n.a. <$100,000 individual 4. Prior Review yes yes yes yes yes (>$50,000) 5. Ex-post Review Explain briefly the ex-post review mechanism: The Bank will monitor procurement activities, contract management and project record keeping during periodic supervision missions. 20% of contracts will be ex-post reviewed. I~~~~~~~ ... .. .. .... .. .. Section 2. Capacity of the Implementing Agency in Procurement and Technical Assistance requirenments 6. Brief statement: Primary responsibility for overseeing implementation of procurement procedures will rest with the staff of the Project Implementation Unit. 7. Country Procurement Assessment Report or Country Procurement Strategy Paper status: 8 Are the bidding documents for the procurement Country Procurement Strategy Paper was issued May 1997. actions of the first year ready by negotiations? No Section 3. Training, Information and Development on Procurement 9. Estimated date of Project 10. Estimated date of I 1. Indicate if contracts are subject 12. Domestic 13. Domestic Launch Workshop: April 1998 General Procurement Notice to mandatory SPN in Development Preference for Preference for publication: January 1998 Business: No Goods/Works: Consultant No/No Services: No 14. Retroactive financing No |15. Advanced Procurement No 16. Explain briefly the Procurement Monitoring System and Information System: TORs for all consultant service contracts will be submitted for no-objections by the Bank. In addition, the PIU will develop a monitoring/reporting system for timely implementation of training. Section 4. Procurement Staffing 17 Indicate name of Procurement Staff as part of Project Team: Division: Ext. Snezana Mitrovic, Procurement Analyst, ECSRE x32182 18. Explain briefly the expected role of the Field Office in Procurement: Field Office will provide back-up on procurement issues to project team. Procurement Plan: Republic of Arnenia - Agriculture Reforn Support Project (expressed in US$'000) Descnption Type No of Estimated Procurement Document Invitation Contract Contract contracts cMst method preparation to bid signing completion Equipment 10 2167.9 Vehicles G 2 571.3 ICB Mar-98 May-98 Aug-98, Dec-98 Feb-99 to Jun-99 Vehides for Agrobusiness Dev. Center 44.8 Vehicles for Agricultural Institutions 313 6 Vehicles for Agricuftural Research Council 11.2 Vehides fbr Agricultural Support Centers 168.0 Vehides for P1IU 33.6 Computer Equipment G 2 419.7 ICB Apr-98 Jun-98 Sep-98 to Mar-00 Sep-00 Computer Equipment for Agribusiness Dev. Center 15.9 Computer Equipment for Agricultural Institutions 292.9 Computer Equipment for Agricultural Research Council 4.5 Computer Equipment for Agricultural Support Centers 88.5 Computer Equipment for PIU 17.9 Office Furnishings and Equipment G 4 162.2 IS Apr-98 Jun-98 Aug-98 to Mar40 Sep.00 Office Fumiture for Agribusiness Dev. Center 19 0 Office Fumishings for Ag. Institutions 107.5 Office Fumishings for Agricultural Support Centers 24.4 Office Fumishings for PIU 11.2 Training Equipment G 1 91.6 IS Aug-98 Sep-98 Sep-98 Jan-99 Training Equipment for Agribusiness Dev. Center 3 4 Training Equipment for Agricultural Institutions 54.7 Training Equipment for Agricultural Support Centers 28 0 Training Equipment for PIU 5.6 Other Equipment G 1 923.0 ICB Aug-98 Oct-98 Mar-99 Jun-99 Laboratory Equipment and Field Equipment for Ag. Institutions 1 923 0 Rehabilitation - Refurbishment SW 5 666.5 NCB, MW Nov-97 Dec-97 Jan-98 to Oct-99 Mar-00 Refurbishment of Research Institutions 3 543 3 NCB (Slice and Package) May-98 Aug-98 to Aug 99 Oct-98 to Oct-99 Mar-00 Refurbishment of Agricultural Support Centers 1 112.0 MW Nov-97 Dec-97 Jan to Oct-98 Mar-99 Offmce Refurbishment for PIU I 11 2 MW Feb-98 Mar-98 Apr-98 Jun-98 Technical Services TS 6 365.8 NCB Mar-98 Apr-98 to May-01 May-98 to Aug41 Dec-01 Vehicle Maintenance Contracts 3 210 9 NCB Feb-99 Mar-99 Apr-99 Apr-02 Computer Equipment Maintenance Contracts 3 154 9 NCB Mar-99 Apr-99 May-99 Apr-02 Line of Credit 6850.0 CP Credits for Onlending - 4850.0 CP Domestically Raised Onlending Funds - 2000.0 NBF Training and Technical Assistance CFICI 11 1120.2 QCBS. OBS, LC, I Nov-97 Dec-97 to May-99 Jan-98 to Mar-00 Jun-01 Training for Agnbusrness Dev. Center Personnel CF 3 371 9 QBS Nov-97 Dec-97 Jan-98-Mar-00 Jun-01 Local Training for Agncultural Institutions CF 2 299.1 QBS May-98 Aug-98 Oct-98 Jun-01 Technical Assistance for Agricultural lnstitutions CF 1 135 5 QBS May-98 Aug-98 Oct-98 Jun-00 Local Training for Agnaultural Research Council CI 1 33 6 I Nov-97 Dec-97 Feb-98 Jun401 Technical Assistance for Ag. Research Council Cl 1 42 6 I Nov-97 Dec-97 Feb-98 Sep-99 Local Training for Agricultural Support Centers CF 1 75 6 LC May-98 Aug-98 Oct-98 Jun-01 Technical Assistance for Ag. Support Centers Cl 1 35 8 I May-98 Aug-98 Oct-98 Jun-99 Training and Technical Assistance for PIU CF 1 126 0 QCBS May-98 Aug-98 Oct-98 Jun-99 Proiect Implementation 92 1829.4 Consultants for Business Plans by Agnbus Dev. Ctr Cl 15 390.6 I Feb-98 Mar-98 Apr-98 Apr-02 Other - Agnbusiness Development Center 154.9 NBF Consultants - Agricultural Research Council Cl 9 144.2 I Feb-98 Mar-98 Apr-98 Apr-02 Other - Agriculural Research Council 38.6 NBF Consulants - Agricultural Support Centers Cl 60 344 2 I Feb-98 Mar-98 Apr-98 to Apr-00 Apr-02 Other- Agricultural Support Centers 135.6 NBF Consultants - PIU Cl 8 453 5 I Feb-98 Mar-98 Apr-98 Sep-02 Other- PIU 167 8 NBF Orerating Cstk 5315.2 Operation and Consumables - Agnbusiness Dev. Ctr. 246 8 Consumables - Agricultural Research Centers 896.1 Operation and Consumables - Agricutural Institutions 654 4 Recurrent Costs - Research Literature and Library Publications 223 1 Other - Agricultural Institutions 2714 8 NBF Consumables - Agricultural Research Council 54.3 Operation and Consumables - Agricultural Support Centers 462 1 Consumables - PIU 63 7 GRAND TOTAL 18314.9 PPF Financed 1500.0 Total Vehicles G 11 110.0 IS Oct-97 Nov-97 Dec-97 Jan-98 Vehicles for PIU 10 0 Vehicles for Agrcultural Research Council 10 0 Vehicles for Agricultural Support Centers 50.0 Vehicles for Property Registration 40 0 Computer Equipment G 1 133.0 IS Oct-97 Nov-97 Dec-97 Jan-98 Computer Equipment for Agrobusiness Dev Center 22 0 Computer Equipment for Agncultural Research Council 11 5 Computer Equipment for Agncultural Support Centers 58 0 Computer Equipment for Property Registration 41.5 Other Equipment G 3 106.0 IS Oct-97 Nov-97 Dec-97 Jan-98 Training Equipment for Ag. Dev Center 3 0 Training Sets for Ag Support Centers 25.0 Total Stations for Property Registration Component 48.0 Plan Storage and Office Eq. for Prop Registration 30.0 Office Fumishings G 1 67.2 IS Oct-97 Nov-97 Dec-97 Jan-98 Fumishings for Agribusiness Development Center 3 0 Fumishings for Agricultural Research Council 10 0 Fumishings for-Agricultural Support Centers 34.2 Fumishings for Property Registration 20.0 Refurbishment of Facilities SW 2 65.0 MW Oct-97 Nov-97 Dec-97 Jan-98 Refurbishment of Ag Research Council 1 25 0 Refurbishment of Agricultural Support Centers 1 40.0 Training and Technical Assistance CF/CI 6 191.0 I, LC Training for Agribusiness Dev Center Staff Cl 2 400 1 Oct-97 Nov-97 Dec-97 Jan-98 Training for Agricultural Research Council Staff Cl 1 45.0 1 Oct-97 Nov-97 Dec-97 Jan-98 Training for Property Registration Component CI 1 30 0 1 Oct-97 Nov-97 Dec-97 Jan-98 Technical Assistance for Property Registration CF 1 58 0 LC Oct-97 Nov-97 Dec-97 Jan-98 Technical Assistance for Ag Research Council Cl 1 18 0 1 Oct-97 Nov-97 Dec-97 Jan-98 Credit Line 650.0 CP Incremental PIU Costs 76.4 Maintenance and Other Recurrent Costs 101.4 Tiy= G -goods, CF - consulting firms; Cl - individual consultants; TS- technical services Procurement Method: ICB - intemational competitive bidding; NCB - national competitive bidding; IS - intemational shopping; NS - national shopping; MW - minor works; IC - individual consultants; QBS - consultants quality based, QCBS - quality and cost based selection; Description Type No. of Estimated Procurement Document Invitation Contract Contract contracts cost method preparation to bid signing completion ;:oidnmAnI 10.0 2167.9 Vehicles G 2 571.3 ICB Mar-98 May-98 Aug-98, Dec-98 Feb-98 to Mar-99 Computer Equipment G 2 419.7 ICB Apr-98 Jun-98 Sep-98 to Mar-00 Sep-00 Office Fumishings and Equipment G 4 162.2 IS Apr-98 Jun-98 Aug-98 to Mar400 Sep40 Training Equipment G 1 91.6 IS Aug-98 Sep-98 Sep-98 Jan-99 Other Equipment G 1 923.0 ICB Aug-98 Oct-98 Mar-99 Jun-99 Rehabilitation - Refurbishment SW 5 666.5 NCB, MW Nov-97 Dec-97 Jan-98 to Oct-99 Mar-00 Technical Services TS 6 365.8 NCB Mar-98 Apr-98 to May-01 May-98 to Aug-01 Dec-01 Line of Credit 6850.0 CP Training and Technical Assistance CF/CI 11 1120.2 QCBS, QBS, LC, I Nov-97 Dec-97 to May-99 Jan-98 to Mar40 Jun41 Prolect Implementation CI 92 1829.4 I, NBF Feb-98 Mar-98 Apr-98 Sep42 ORmiraUng Costs 5315.2 GRAND TOTAL 18314.9 PPF Financed 1500.0 Total Vehicles G 11 110.0 Is Oct-97 Nov-97 Dec-97 Jan-98 Computer Equipment G 1 133.0 IS Oct-97 Nov-97 Dec-97 Jan-98 Other Equipment G 3 106.0 IS Oct-97 Nov-97 Dec-97 Jan-98 Office Fumishings G 1 67.2 IS Oct-97 Nov-97 Dec-97 Jan-98 Refurbishment of Facilities SW 2 65.0 MW Oct-97 Nov-97 Dec-97 Jan-98 Training and TechnIcal Assistance CFICI 6 191.0 I, LC Oct-97 Nov-97 Dec-97 Jan-98 Credit Line 650.0 CP Incremental PIU Costs 76.4 Maintenance and Other Recurrent Costs 101.4 Tyvcg G -goods, CF - consulting firms; Cl - individual consultants, TS- technical services Procurement Method: lCB - intemational competitive bidding, NCB - national competitive bidding: IS - international shopping, NS - national shopping; MW - minor works, IC - individual consultants, QBS - consultants quality based; QCBS - quality and cost based selection, ENVIRONMENTAL DATA SHEET FOR PROJECTS in the IBRD/IDA Lending Program Country: ARMENIA Project ID No: AM-PA-35806 Project Name: Agriculture Reform Total Project Cost: $29.0 million Support Project Appraisal Date: 10-15-97 Task Manager: Mark R. Lundell Board Date: 1-22-98 Sector: Agriculture/Title Managing Division: ECSRE Registration Lending Instmments: Investment Loan Status: Appraisal/Negotiations Date (est) for receipt of EA by Bank: NA EA Category (A/B/C): B Date Assigned: June 14, 1996 Date Shcet Prepared/Updated November 20, 1997 (Please do not leave any items blank: use 'N/A' or 'To be developed" when appropriate) Major Project Components: (presents description of project components) Financing an expansion of the rural credit system, establishing a unified registry system of both rural and urban land and other real estate, establishing an agribusiness development center to offer information and training on agro-industrial restructuring, and institutional strengthening with i) financing for intensification of agricultural extension services, ii) investments in retraining the teaching staff for higher agricultural and agribusiness education, and (iii) critical investments in the agricultural research system. Major Envionmenal Issues: (describes major environmental issues identified or suspected in project) No significant negative environmental impacts are anticipated from this project. The average loan size in the rural finance component is small (US$1000 per borrower) and the types of investment would be aimed at increasing agricultural productivity of individual private farmers with average holdings of 1.4 hectares. The share of fertilizers and agricultural chemicals in farm input costs (indicated by a 1996 farmer survey) is 15%. Other Environmental Issues: (describes environmental issues of lesser scope associated with project) The project's rural finance and agricultural extension components could promote use of off-farm inputs such as agro-chemicals and fertilizers. Proposed Actons: (describes actions proposed to mitigate enviromnental issues described in project) All agro-chemicals and fertilizers promoted by the Agricultural Extension Service under the project would be in accordance with OD 4.03. The credit officers of the participating financial institutions Cooperative bank and others) will receive training in the screening of loan applications for the use of agricultural chemicals, including awareness of hazardous pesticides. JustficationlRatonak for Envronmental Category: (reasons for environmental category selected & explanation of any changes from initial classification) The project was classified as category "B" because the rural finance and agricultural extension components could promote use of off-farm inputs such as agro-chemicals and fertilizers, but sufficient screening and monitoring procedures will be in place. Stu of Category A Environmental Assessmentk (presents EA start-up date, EA first draft, and current status) NA Remarks: (gives staus of any other enviromnental studies, lists local groups and local NGOs consulted, tells whether borrower has given permission to release EA, etc) A National Environmental Action Plan is currently being worked out with relevant counterparts in the Government of Armenia. Signed by: Signed by: l Jo_ ayachel de Nevers, Sector LeIer, ECSRE l ______________________________________________________ 1 November 20, 1997 Armenia at a glance Eu.r4:p:1 & POVERTY and S0CCAL Cent Law. Anmneas Asa Income Deve0pmefe dli_n Populaton mrd.1995 (Mnos) 3.8 48 3.180 GNP p cptt 1995 IMJSUS 730 2220 "a I Lim GNP 1995 (ns US57 Z8 1,084 1,399 Average annual ghwd, 199041 PopulaUon (%) 1.2 0.3 1.7t Labrorc(I t 1.4 0.5 1.7 GNP Most rectm estmaW gated yetrAdo wv 1988) calz Prvety. hadcount ked ( W d) Uroanpopulaionfl(%dofelpoSdps .50 6S 29 LUfa *vowicy at b8 &*W) 73 e8 63 Infant moitey (Dv 1.O NWO lhe 21 28 69 Acssto sof war Chdd malnumth.n (% o Idf u _ Al Aiss to safe wat (% odpo o .. ., s7 lteracy (% of popa,}n a 15;) 34 1n Goss pnrmay enrofnt (% af3dxwo popum, s0 97 105 -Low mup mew 87 97 112 Fonrale 93 97 s - KEY ECONOMIC RAIOS and LONrTERM TREOMS 1*75 19" 1914 1998 1998.S E n GOP (bilons USS) .. 5.1 0.7 1.3 1.6 <;osa damsc inGDestmrVOP .. 27.8 10.8 10.2 7.1 E!=on of good_ and nw4atser"I . 39.5 23.7 22.9 Gross domec SaVuqWGOP .. 32.8 -29.2 -28.0 .25.9 Gross nonal sv GP _ 11.7 -.2 -83 cw,nsvt acon bawnal6DP (awe g_ _355 -:3.9 -25. \ Tal daoDu GOP 30.7 3Z9 38.2 TW dett sele)poll. 3.1 20.4 18.8 Pim vauefdeo de P _. _ 7.9 Prit valu of dswlwm .. 79.6 1575.84 1 J8- 1t"4 19S 191 ti 191748 -Ann (averg annual gM!) - L oog GDP 41.1 41t.4 5.4 6.9 5.3 6.1 GNP per capt - 122 4.5 3.9 4.J 4.3 E-orts of goods and rds _ _ 3.0 10.0 14.2 9.8 __ 3TRUCTURE of this CONOMY 1t51 1181 1954 191 1116.1 (% of GOP) t of d _ _ _ Ag-uttrs _ 14.7 43.5 42.8 38.3 1% Irndy . 51.3 35.8 34.0 31.9 Manufacig . 25.1 24.0 22.8 ser#ls . 30.0 17.5 19.7 23.0 PW? uonsumpbo _ 46.4 117.7 115.0 113.9 96 Is Genr govemmem canun-ption 20.S 11.5 13.0 12.0 1rnmor of goods and .,4atr sw . . 79.5 61.9 5S.9 1 -a -*30P 117144 19815- 1994 19s, 1996 1 (&Vev* annual gmw0) Agrncutu .. .. -12.0 5.2 3.0 | icusy .. 20.0 1.8 2.2j Manufang .. .. .. 2.5 2.5 4 Sees .. 70.5 I9.4 9.1 P1va consumption ,, , 8.8 21.9 9.2 General gaveme nuo on ,. _ 13.3 40.a 1.5 ' Gcoss domeotc invesullnt .. _ S7.0 9.4 .22.4 ; I prnt df goods and son-iot rQrvS .. _ 5.0 35.8 9.9 I _ _,, , Gros natonal produ .. -10.9 5.4 4.2 5.1 dhoiamonds sfow four kaytndle neeeni (In tiold) coipafe4wihrtwcoregroupaveage.If dw na rssu, w e n drd VS s Esswiate Annena PRICES and GOVERNIT RINANCE 157 155 1584 1518 155. k.idan%I OomC plc.s (% denge) __ Crunw Qnm _ _ 5.273.4 176.7 18. 4 IHrriit GOP defator 0.4 4.7 .273.4 161.2 19.5 ' Govenm nn of atGDP) 4 1 u W J Cuaemt ruwue (gxd gram) _ _ 15. 16.2 16.2 C-imnt Wbeforce (pd gw)_ -t S6.5 J. .345 Over0l surt( devgct(Uah ") _ -2B.3 .13.5 -10.1 -t -C _pI TRDE (- 197S 1S6 1554 1t1S 1M16e of a klmpeeim (mu.tS5 (1Wms US$) Tow expo (tb) _ _ 200 271 290 n.s. _ _ 4 . manuf _b 41 39 40 . _ Tite tmpot (c m _ 401- 673 726 Zan Food _ .. 113 229 247 * . Fwu and nery 160 17_ 194 I Caoia goods _ _ 14 26 25 a n a a a rt ce ila (1994-10 100 108 113 cS [moon pnct mto (1994-00J _ _ 100 119 115 TermsOf d* (99404100 . 100 95 06 ___________ BALANCE of PAYMENTS 1575 158 1594 1956 199 o Cw1e t (jndions US$) % Ex.ts of goods aid no_trv=s . 257 304 365 lcorm of goodst aidmx4acrssvis . 51_ 796 890 Rmowr atanr _ -m 21 -42 -525 mm factor one __ -927 V0 2 4 n SWK currommttt _ _ 36 as 74 1w J nur" cwt sl 140 3eftm offal toaea . _ 1 43 -424 L FW=nqg ibns _ _ 238 465 434 Cianes in ne r_ves -7 -29 -t1 A emo:_ Rwtnesndud gk dO US5, _ _ 32 107 167 C4nversmn rim (_b Lt4E-03 96.3 25Z.7 EXTERNAL OEWT ad RESOURCE PLOWS5 tmUSSst~~~~~~~~~I j3 It"IsS l9t ToWdeotmoutiAk nrAisbwsd _ 134 200 423 al6 iBRD _ 1 2 5 11 IOA 5 - 94 181 A ToW dedtsw4= . 2 a 63 6C IBRO _ 0 a 0 1 94 IOA _ 0 0 0 1 CorPOSMOn o net rtMCe flOWS ofIomI gruno . 76 237 199 17s 168.4 Oclkaa , atou - 87 41 72 174 Pnvw _dts . 0 0 a 0 ;orman diraiWaneft a O 3 is 22 C poerdo.eqwty .. 0 0 O womI Bank wo~qmsn CO _ivsm 12 28 149 79 g A.EURO - EB-_ Olsowwt s 1 7 92 92 3.10A -O.ownuatU F - PVM Prlnouaireanymen . 0 0 0 0 a-MP G-Shoo. NotIIows - 1 7 92 92 ,n,*.sQ aymenm _ o 0 1 2 Not tunur - t 6 91 91 lntmauorat Ez:nom Oeo m0 Note: Estmatas for gowmie of St bm So"it Union am eubic to mor tn VW e ua igunpd wmt. e Estimate 4E Am To SBW-ved 46 1A- 4'4 GEORGIA ~~~~~~~~~~~~~GEORGIA / xToS=9dunovia ',_,NZ /t < [ r*S a tt '-- \ 4c .t UKRANE ,o~""\/ A < 7 > X ;<, , ,. KAZAKS , * o - 'trANN 'xLORI I SI~~~~~~~~~~~~~~~~ '~OLDOVA FEDERATION ' m 4aa Wh ' GAROM IA 1 C ,-"- >jW -ZiF t o %( .I IJANZo Ierd MINGECHAURSKOYE A G KOSu , -VANADZORN~ > RESERVOIR ' REI ~ ' qW,BCAJKENISTAN / , ~~~~~~~~~~~~~~~~~~~~~~~~yTURKEY t, L}t __ .SARAKtm Y V ' Dili1orn t)) ;i 'f4b Asl4TARAi>_i4TtE GAVARt t 5S<'~~~~~~~~~~~ j i DR CRESERVOIRS y, 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SELECTED TGWNS/V VLLAGES AR4 (F)~~~~~~~~~~~~~~~~Mrlo orei BEGION MARZI CAPITALS NATIONAL CAPITAL R, '= EElo ZSaROADSl40' HAT . 45' 46 u R11-ROADSLA REGION 9,%ARZ) BOUNDARIES Arorot J-kAY T D R INTERNATIONAL BOUNDARIE TSGGNDZR .ol YEGEG~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 TURKEY~~~~~~~~~~~~~~~~~~~~~~~~~~''-N AZERBA&IJAN To k-;A / T'; -.4 ~~ISLAMIC Tho,pes,-odsai REPUBLIC Bo,s, , TZoeo S 2 B AMe -39- ~~~~~~~OF IRAN ID 2D Q 0 ' 0K,.r 9- SB;ns~,,,Uo,eso,,A`k ik5 'opAoeot'n~~~~~~~~t~~ tm t B 15 55 55 45 55 ASK senIors 49'~~~~~~~~T. ld~~d 44' 45 A7R'8 JULY 1997