Document of The World Bank FOR OFFICIAL USE ONLY Report No: 87044-LC INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON PROPOSED CREDITS IN THE AMOUNT OF SDR 26.6 MILLION (US$ 41 MILLION EQUIVALENT) INCLUDING US$ 17 MILLION EQUIVALENT IN CRISIS RESPONSE WINDOW RESOURCES AND PROPOSED CO-FINANCING FROM THE STRATEGIC CLIMATE FUND IN A GRANT IN THE AMOUNT OF US$ 12 MILLION AND A LOAN IN THE AMOUNT OF US$ 15 MILLION TO SAINT LUCIA FOR A DISASTER VULNERABILITY REDUCTION PROJECT May 8, 2014 Caribbean Country Management Unit Sustainable Development Department Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2014) Currency Unit = XCD XCD 0.37 = US$1 US$0.64878 = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CAFF Climate Adaptation Financing Facility CARICOM Caribbean Community CCRIF Caribbean Catastrophe Risk Insurance Facility CIF Climate Investment Fund CRW Crisis Response Window DMP II Second Disaster Management Project DRM Disaster Risk Management DVRP Disaster Vulnerability Reduction Project EA Environmental Assessment EIA Environmental Impact Assessment EMF Environmental Management Framework ERDMP Emergency Recovery Disaster Management Project FM Financial Management GDP Gross Domestic Product GIS Geographic Information System GoSL Government of Saint Lucia HTERP Hurricane Tomas Emergency Recovery Project IA Implementing Agencies IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IFR Interim Financial Report LCS Least Cost Selection LoC Line of Credit M&E Monitoring and Evaluation MIPS&T Ministry of Infrastructure, Port Services, and Transport MoE Ministry of Education, Human Resource Development and Labour MoF Ministry of Finance, Economic Affairs, Planning and Social Security MoH Ministry of Health, Wellness, Human Services and Gender Relations MoPP Ministry of Physical Planning, Housing and Urban Renewal MoSDEST Ministry of Public Service, Sustainable Development, Energy, Science and Technology NCB National Competitive Bidding NDU National Development Unit i NEMO National Emergency Management Organization OECS Organization of Eastern Caribbean States OM Operations Manual OP Operational Policy ORAF Operational Risk Assessment Framework PPA Project Preparation Advance PCC Project Coordination Committee PCU Project Coordination Unit PDO Project Development Objective PPCR Pilot Program for Climate Resilience RAP Resettlement Action Plan RDVRP Regional Disaster Vulnerability Reduction Program RPF Resettlement Policy Framework RPS Regional Partnership Strategy SCF Strategic Climate Fund SDED Sustainable Development and Environment Department SLASPA Saint Lucia Air and Sea Ports Authority SLDB Saint Lucia Development Bank SPCR Strategic Program for Climate Resilience ToR Terms of Reference WASCO Water and Sewerage Company WRMA Water Resources Management Agency Regional Vice President: Jorge Familiar Country Director: Sophie Sirtaine Sector Director: Ede Jorge Ijjasz-Vasquez Sector Manager: Anna Wellenstein Task Team Leader: Tiguist Fisseha ii SAINT LUCIA Disaster Vulnerability Reduction Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context .......................................................................................................... 1 B. Situation of Urgent Need of Assistance or Capacity Constraints ............................... 2 C. Sectoral and Institutional Context............................................................................... 2 D. Higher-Level Objectives to Which the Project Contributes ....................................... 4 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................5 A. PDO............................................................................................................................. 5 B. Project Beneficiaries ................................................................................................... 5 C. PDO Level Results Indicators ..................................................................................... 5 III. PROJECT DESCRIPTION ..............................................................................................6 A. Project Components .................................................................................................... 6 B. Project Financing ........................................................................................................ 9 C. Lessons Learned and Reflected in the Project Design ................................................ 9 IV. IMPLEMENTATION .....................................................................................................11 A. Institutional and Implementation Arrangements ...................................................... 11 B. Results Monitoring and Evaluation .......................................................................... 12 C. Sustainability............................................................................................................. 12 V. KEY RISKS AND MITIGATION MEASURES ..........................................................13 A. Risk Ratings .............................................................................................................. 13 B. Overall Risk Rating Explanation .............................................................................. 13 VI. APPRAISAL SUMMARY ..............................................................................................14 A. Economic Analysis ................................................................................................... 14 B. Technical ................................................................................................................... 14 C. Financial Management .............................................................................................. 14 D. Procurement .............................................................................................................. 15 E. Social (including safeguards) .................................................................................... 15 iii F. Environment (including safeguards) ......................................................................... 15 Annex 1: Results Framework and Monitoring .........................................................................17 Annex 2: Detailed Project Description .......................................................................................23 Annex 3: Implementation Arrangements ..................................................................................36 Annex 4: Operational Risk Assessment Framework (ORAF) .................................................49 Annex 5: Implementation Support Plan ....................................................................................54 Annex 6: OP/BP 10 Financial Intermediary Financing ...........................................................57 Annex 7. Economic Analysis ......................................................................................................64 Annex 8. Map of Saint Lucia ......................................................................................................74 Table 1: Project Cost and Financing (in US$ million) ................................................................... 9 Table 2: Summary of Risks and Risk Ratings .............................................................................. 13 Table 3: Cost-Benefit Analysis for Four Subprojects……………………………………………14 Table 4. Summary of Damage and Loss by Sector ($ million) .................................................... 24 Table 5: Examples of potential Investments under the CAFF ...................................................... 29 Table 6: Alignment of Project Activities with Regional IDA Eligibility Criteria ........................ 34 Table 7: Procurement methods thresholds and prior review thresholds ....................................... 43 Table 8: Skills Mix Required ........................................................................................................ 56 Table 9: Skills Focus and Timing ................................................................................................. 56 Table 10: Partners ......................................................................................................................... 56 Table 11: SLDB Balance Sheet - Key Figures ............................................................................. 62 Table 12: SLDB Financial Soundness Indicators ......................................................................... 62 Table 13: SLDB Liquidity Analysis (as of March 31, 2009) ....................................................... 63 Table 14: Institutional Development Plan for SLDB ................................................................... 63 Table 15: Selected Sample Project Activities for the Economic Analysis ................................... 65 Table 16: Number of Vehicles Crossing the Choc Bridge per day............................................... 66 Table 17: Number of Vehicles Crossing the National Highway per day ..................................... 67 Table 18: Costs of the Subprojects on Sample ............................................................................. 68 Table 19: Damage costs for Choc Bridge Fuel and Time costs ................................................... 69 Table 20: Economic Results ........................................................................................................ 71 Table 21: Results of the Sensitivity Analysis ............................................................................... 71 Table 22: Probability Distribution selected for each variable ...................................................... 72 Table 23: Financial and Economic Risk Assessment .................................................................. 72 Figure 1: CAFF Flow of Funds ..................................................................................................... 59 Figure 2: SLDB Organizational chart ........................................................................................... 61 Figure 3: SLDB Loan Portfolio Concentration by Sector (as of May 31, 2012) .......................... 63 Box 1: Saint Lucia Advances towards greater Climate Resilience………………………………23 iv . PAD DATA SHEET Saint Lucia Disaster Vulnerability Reduction Project (P127226) PROJECT APPRAISAL DOCUMENT . LATIN AMERICA AND CARIBBEAN LCSDU Report No.: 87044-LC . Basic Information Project ID EA Category Team Leader P127226 B - Partial Assessment Tiguist Fisseha Lending Instrument Fragile and/or Capacity Constraints [ X ] Investment Project Financing - Natural or man-made disaster Financial Intermediaries [ X ] Series of Projects [ X ] Project Implementation Start Date Project Implementation End Date 30-Sep-2014 01-Oct-2019 Expected Effectiveness Date Expected Closing Date 30-Sep-2014 01-Apr-2020 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Anna Wellenstein Ede Jorge Ijjasz-Vasquez Sophie Sirtaine Jorge Familiar . Borrower: Saint Lucia Responsible Agency: Ministry of Finance Contact: Ms. Tracy Polius Title: Permanent Secretary Telephone No.: 7584682413 Email: tpolius@gosl.gov.lc . v Safeguards Deferral (from Decision Review Decision Note) Will the review of Safeguards be deferred? [ ] Yes [ X ] No Project Financing Data(in USD Million) [ ] Loan [X] Grant [ ] Guarantee [X] Credit [ ] IDA Grant [ ] Other Total Project Cost: 68.00 Total Bank Financing: 41.00 Financing Gap: 0.00 . Financing Source Amount BORROWER/RECIPIENT 0.00 International Bank for Reconstruction and 0.00 Development International Development Association (IDA) 24.00 Crisis Response Window IDA Credit 17.00 Strategic Climate Fund Grant 12.00 Strategic Climate Fund Loan 15.00 Total 68.00 . Expected Disbursements (in USD Million) Fiscal 2015 2016 2017 2018 2019 2020 0000 0000 0000 Year Annual 1.50 6.50 15.00 16.00 19.00 10.00 0.00 0.00 0.00 Cumulati 1.50 8.00 23.00 39.00 58.00 68.00 0.00 0.00 0.00 ve . Proposed Development Objective(s) The Project Development Objective (PDO) is to reduce vulnerability to natural hazards and climate change impacts in Saint Lucia. . Components Component Name Cost (USD Millions) Risk Reduction and Adaptation Measures 49.00 Technical Assistance for Improved Assessment and 10.00 Application of Disaster and Climate Risk Information in Decision-Making Climate Adaptation Financing Facility 5.00 vi Contingent Emergency Response 1.00 Project Management and Implementation Support 3.00 . Institutional Data Sector Board Urban Development . Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Public Administration, Law, and Public administration- 20 100 Justice Water, sanitation and flood protection Health and other social services Other social services 5 100 Transportation Rural and Inter-Urban 25 100 Roads and Highways Water, sanitation and flood protection Flood protection 50 100 Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Social protection and risk management Natural disaster management 50 Environment and natural resources Climate change 50 management Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] vii Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Description of Covenant . Conditions Name Type Operations Manual (Financing Agreement, Article V, 5.01, b) Effectiveness Description of Condition GoSL to prepare and adopt an Operations Manual for components 1, 2, and 5 in form and substance satisfactory to the World Bank. Name Type Project Coordination Committee (Financing Agreement, Article V, 5.01, c) Effectiveness Description of Condition GoSL to establish a Project Coordination Committee with mandate, composition, functions and resources satisfactory to the Association. Name Type Legal Agreements (Financing Agreement, Article V, 5.01, a); (Loan Effectiveness viii Agreement, Article V, 5.01, a); (Grant Agreement, Article V, 5.01); Description of Condition GoSL to execute the four Legal Agreements: IDA Financing Agreement, PPCR Grant Agreement, SCF Loan Agreement, Project Agreement. Name Type Subsidiary Agreement for Component 3 - Climate Adaptation Financing Effectiveness Facility (CAFF) (Loan Agreement, Article V, 5.01, b) Description of Condition The Subsidiary Agreement has been executed on behalf of the GoSL and the Saint Lucia Development Bank (SLDB). Name Type Component 3 – CAFF (Loan Agreement, Schedule 2, Section IV.B.1 (b)) Disbursement Description of Condition No withdrawal shall be made under Component 3 unless and until (i) SLDB has prepared and adopted the CAFF Manual, in form and substance satisfactory to the World Bank; and (ii) implemented the institutional development plan for the CAFF, in a manner acceptable to the World Bank. Name Type Operations Manual for Contingent Component (Component 4) (Financing Disbursement Agreement, Schedule 2, Section IV.B.1 (b)) Description of Condition GoSL to prepare and adopt Contingent Component-specific Operations Manual and defined Action Plan of Activities, in form and substance satisfactory to the World Bank Team Composition Bank Staff Name Title Specialization Unit Tiguist Fisseha Disaster Risk Team Lead LCSDU Management Specialist Niels B. Holm-Nielsen Lead Disaster Risk Disaster Risk LCSDU Management Specialist Management Victor Manuel Ordonez Senior Finance Officer Finance CTRLN Conde Patricia M. Acevedo Program Assistant Program Assistant LCSDU Manju Ghumman Program Assistant Program Assistant LEGLE Ana F. Daza Language Program Language Program LCSDU Assistant Assistant ix Plamen Stoyanov Kirov Senior Procurement Procurement LCSPT Specialist Edith Ruguru Mwenda Senior Counsel Lawyer LEGAM M. Yaa Pokua Afriyie Senior Social Social Development LCSSO Oppong Development Specialist David I Senior Financial Senior Financial LCSFM Management Specialist Management Specialist Leyla V. Castillo Financial Sector Financial Sector FFIMS Specialist Specialist Christopher J. Chung E T Consultant Operations Analyst LCSDU Melanie Simone Kappes E T Consultant Disaster Risk LCSDU Assessment Bishwa Raj Pandey E T Consultant Spatial Data LCSDU management Daniel E. Thirion Consultant Civil Engineer LCSDU Emily Francoise Bove Consultant Gender and M&E LCSDU Michael J. Darr Consultant Environment LCSEN Beatriz Pozueta Mayo Consultant Coastal Engineer LCSDU Margaret Patricia Henley Consultant Operations Analyst LCSDU Barrett Luz Maria Gonzalez Consultant Economist LCSDU Gerald E. Meier Consultant Hydromet Specialist LCSDU Sophie Bettencourt Peer Reviewer Lead Operations Officer GFDRR Emilia Battaglini Peer Reviewer Sr Environmental LCSEN Specialist Pierre Bonneau Peer Reviewer Sr Infrastructure LCSTR Specialist Fabio Pittaluga Peer Reviewer Sr Social Development LCSSO Specialist Kanta K. Rigaud Reviewer Lead Environmental CCGPT Specialist Andrej Popovic Reviewer Sr Financial Sector FFIMS Specialist x Non Bank Staff Name Title Office Phone City . Locations Country First Location Planned Actual Comments Administrative Division Saint Lucia Greater Castries City of Castries X and South Castries Saint Lucia Anse-La-Raye Anse-La-Raye X Saint Lucia Canaries Canaries X Saint Lucia Dennery Dennery X Saint Lucia Soufriere Soufriere X Saint Lucia Vieux-Fort Vieux-Fort X xi I. STRATEGIC CONTEXT A. Country Context 1. With a gross national income per capita of US$10,300 1, Saint Lucia is an upper-middle- income small island state, with an estimated population of 174,000 (2010). After growing 4.5 percent annually on average during 2003–2006, economic activity slowed sharply in recent years as Saint Lucia was hit by multiple exogenous shocks: Hurricane Dean in August 2007, an earthquake in November 2007, the global food and energy price hikes in 2007–2008, and severe droughts in 2009 and 2010. Between 2008 and 2009, economic growth fell from 5.8 percent to -1.3 percent, largely resulting from the 2008 global financial crisis. The construction, manufacturing and agriculture sectors were significantly affected, along with the tourism sector, which accounts for 65 percent of GDP and represents the main source of foreign exchange earnings and the second largest employer after the public sector 2. Saint Lucia’s economy continues to contract with an estimated negative growth rate of 2.3 percent in 2013 3 driven by a decline in private investment and construction activity. 2. Despite relatively strong social indicators — the 2013 United Nations Development Program Human Development Index ranked Saint Lucia as 88th of 187 countries — poverty and inequality remain high in Saint Lucia. According to the latest Country Poverty Assessment (2005/6), 28.8 percent of the population lives below the locally defined poverty line (an increase from 25.1 percent in 1995), while 6 percent of the population is indigent 4 and 40.3 percent is estimated to consume at a level under the vulnerability line. 5 In addition, approximately 20.5 percent of the population is unemployed (2010), an increase of 11 percent since 2005. In 2006, the Gini coefficient of Saint Lucia was 0.42, with sharp regional differences evident in poverty rates. Recent disaster trends also demonstrated that areas with the highest rates of poverty also tend to suffer the most from flooding and landslides. 3. While Saint Lucia aims to improve its citizens’ social conditions through investments in infrastructure, economic diversification and employment generation, its population, economy and national assets remain highly exposed to natural catastrophic risk, which jeopardizes efforts at ending extreme poverty and boosting shared prosperity. Over the years, disasters stemming from weather-related natural hazards, such as winds, floods, landslides and droughts, have increasingly impacted livelihoods, destroyed infrastructure, and disrupted provision of essential services. This has necessitated committing a growing share of the national budget for recovery and reconstruction efforts, thereby imposing large costs on the country’s fragile economy and setting back hard won development gains. 6 1 Estimated 2012 GNI per capita, PPP (current international $). World Development Indicators, The World Bank, 2014 2 CIA 2013 3 Page 27, Saint Lucia Budget Statement, 2014. 4 Indigence is defined as “persons whose daily average consumption is too low to guarantee adequate nutrition to maintain good bodily health” (Saint Lucia CPA 2005/6, p. xvi). 5 A vulnerability line is defined as 125% of the poverty line; it measures the number of persons who are susceptible to becoming poor due to an unanticipated event such as a natural catastrophe or other economic shock. 6 In recent years, a range of adverse natural events has impacted Saint Lucia. Since Hurricane Allen in1980, Saint Lucia has been affected by at least six hurricanes and tropical storms, three of which occurred between 2002-2007; eight major landslides, which have resulted in the destruction of homes, dislocation of communities and significant loss of biodiversity; as well as a series of earthquakes in 1990 and in 2007, which includes a magnitude 7.3 earthquake. 1 B. Situation of Urgent Need of Assistance or Capacity Constraints 4. On December 24, 2013, a low-level trough passed over Saint Lucia producing extraordinarily intense rainfall at a time well outside of the hurricane season. Over a three-hour period, the island received an average of 224 millimeters of rain. A rainfall of this magnitude within such a short period is estimated to be a 1-in-100 year event in Saint Lucia. The GoSL formally requested financial and technical assistance from the World Bank on January 7, 2014. A rapid Damage and Needs Assessment was subsequently carried out with the GoSL from January 21 – 31, 2014, which estimated a combined physical damage and economic losses of approximately US$99.8 million (8.3 percent of GDP), with impacts largely concentrated in areas with poverty rates higher than the national average (Anse-la-Raye, Canaries, Marc-Bexon, Vieux Fort and Soufriere). A summary of the damage and losses is presented in Table 4 of Annex 2. Given the magnitude of the disaster, the GoSL requires significant support to “build back better” and to enhance the country's overall resilience to disasters. In view of this, US$17 million is sought from the IDA Crisis Response Window (CRW) to support the country’s reconstruction and recovery needs under the Project 7. Given the urgency to respond to the disaster, the Project is processed invoking the Special Considerations of OP 10.00, paragraph 11. C. Sectoral and Institutional Context 5. Climate-related hazards are a significant threat to economic and social development in Saint Lucia. Accordingly, Saint Lucia has undertaken a number of initiatives to reduce the potential impacts of adverse natural events and climate change in order to protect development gains. 6. Disaster Risk Management (DRM). Saint Lucia has made considerable efforts to improve national DRM capacity by: (i) strengthening risk monitoring and early warning systems; (ii) enhancing emergency preparedness and planning; and (iii) increasing public awareness and capacity of public officials. With support from the World Bank, Saint Lucia has implemented disaster response and emergency rehabilitation programs, starting in 1998, including the Emergency Recovery and Disaster Management Program (ERDMP – P070430), which supported physical and institutional efforts for disaster recovery and emergency preparedness 8 and the Second Disaster Management Project (DMP II - P086469). This was a follow-up to the ERDMP which included structural and nonstructural risk reduction measures, such as retrofits of public facilities, construction of coastal protection works, an emergency operation center and community-level risk reduction interventions and capacity building activities. 7. From a policy perspective, Saint Lucia has advanced significantly by introducing the National Hazard Mitigation Policy (2003), establishing the National Emergency Management Organization (NEMO) (2006), and enacting the National Disaster Management Plan (2007) to better guide assessment, prevention and post-disaster response activities. Together, these policies represent a shift from a reactionary to a more proactive and comprehensive DRM framework. 7 A Note presented to the WB Board on March 20 2014 informed the Executive Directors of Management’s intention to allocate an indicative amount of US$17 million to support Saint Lucia’s reconstruction following the 24-25 December 2013 Floods. 8 The ERDMP, an IBRD/IDA blend project, was designed as part of an Adaptable Program Loan that included 5 stand-alone projects in five member countries of the Organization of Eastern Caribbean States (OECS). The Saint Lucia PAD Report No is 18655 - Loan 44190 SLU/Credit 31510 SLU. 2 Part of this framework includes the use of financial instruments to safeguard against fiscal shocks associated with disaster. In 2007, Saint Lucia, along with 16 other Caribbean Community (CARICOM) countries, established the Caribbean Catastrophe Risk Insurance Facility (CCRIF) – the world’s first regional catastrophe risk pooling mechanism which allows countries to pool their hurricane and earthquake risk and collectively approach the international reinsurance market to purchase coverage at better terms. Payouts are immediate and better enable governments to continue public and social service delivery in the wake of a disaster. 9 8. Climate Change Adaptation. Integral to its work on DRM, Saint Lucia has undertaken a number of climate change-related initiatives at the national and community levels over the last two decades 10. In recent years, Saint Lucia (along with five other Caribbean countries) has participated in the regional Pilot Program for Climate Resilience (PPCR) for the Caribbean, one of the targeted programs of the Climate Investment Funds (CIF). As a participant, Saint Lucia developed its national Strategic Program for Climate Resilience (SPCR), 11 a five year strategy to build the country’s resilience to climate change impacts, through the following priority areas: (i) human welfare and livelihood protection; (ii) integrated natural resource protection, conservation, and management to promote sustainable development; (iii) building of resilience through business development, innovation, and productivity enhancement; (iv) capacity building and institutional strengthening; and (v) reduction of risk to climate-related disasters. 9. Notwithstanding Saint Lucia’s progress achieved in nationwide disaster vulnerability reduction and climate change adaptation over the past two decades, the island still faces challenges in adequately and comprehensively managing natural hazard risk. This is particularly the case in the context of a changing climatic environment that threatens to reverse hard won development gains as well as poverty reduction efforts. 10. Despite the evident risks posed by catastrophe events, Saint Lucia lacks a comprehensive DRM framework for planning and investment decision-making. Development decisions often do not take into account disaster risks and expected climate change impacts. Such deficiencies largely derive from a lack of sufficient information on hazards, risks, and climate change impacts as well as limited capacity and weak data sharing among agencies (at both national and regional levels). Additionally, present hydro-meteorological forecasting and emergency management capacities limit the country’s preparedness in the face of adverse natural events. Furthermore, underdeveloped and dilapidated infrastructure challenges disaster vulnerability reduction efforts. Critical public infrastructure such as roads, bridges and water supply systems as well as health and education facilities remain vulnerable to climate change related impacts, including flooding and landslides. Oftentimes, designs and construction were carried out without due consideration to disaster hazard and risk, and maintenance has been deferred over multiple years. Beyond its physical vulnerability and need for an improved understanding of risks, Saint Lucia is also 9 The CCRIF utilizes parametric insurance which is not meant to cover actual damages incurred, but meant to offer immediate liquidity in a disaster’s aftermath. For Saint Lucia, the Facility paid roughly US$1 million within two weeks of the November 2007 earthquake and US$3.2 million following Hurricane Tomas in 2010. 10 The initiatives include ratification of the UN Framework Convention on Climate Change (UNFCCC) in 1993, appointment of a National Climate Change Committee in1998, and adopting a comprehensive climate adaptation framework, and subsequent development of the National Climate Change Policy and Plan in 2002. 11 The Saint Lucia SPCR was developed under the leadership of the GoSL through a highly consultative process and endorsed by the PPCR sub-committee on June 29, 2011. See the CIF website for more details on the SPCR: https://www.climateinvestmentfunds.org/cifnet/?q=country/saint-lucia 3 fiscally threatened by natural catastrophes, given the significant recovery and reconstruction costs associated with such events. Lack of access to immediate capital for post-disaster recovery and reconstruction represents a major challenge. The fiscal impacts of disasters have thus resulted in unsustainable budgetary deficits and dependence on unreliable funding streams. D. Higher-Level Objectives to Which the Project Contributes 11. Links to the Regional Partnership Strategy. The Project is consistent with the World Bank Group’s Regional Partnership Strategy (RPS) for the Organization of Eastern Caribbean States (OECS) 2010–2014 (Report No. 53762-LAC) discussed by the Executive Directors on June 8, 2010, which identifies natural catastrophes as a key challenge facing the sub-region and includes as a core objective the building of resilience to adverse natural events and climate change. 12 In line with this objective, the Project includes activities that reduce risk and increase resilience through civil works, capacity building and institutional development activities. The Project would also contribute to the RPS goal of strengthening the country’s fiscal sustainability by including a contingent component meant to help the GoSL withstand the macroeconomic shocks and budget volatility commonly faced in the aftermaths of a disaster. 12. The Project is also fully aligned with the upcoming World Bank Group RPS for the OECS (2015-2019), currently under preparation. The RPS aims to address poverty and shared prosperity through a dual focus of (i) supporting inclusive sustainable growth and (ii) strengthening resilience. The Project would mainly contribute to the latter goal through risk reduction and adaptation measures, such as infrastructure retrofits and capacity building. 13. Ending Extreme Poverty and Promoting Shared Prosperity. The Project would contribute to the Bank’s dual objectives of ending extreme poverty and promoting shared prosperity. Investments will help reduce both physical and socio-economic vulnerabilities of businesses and households to climate-related disasters. Planned activities such as road rehabilitation and safe bridge construction would ensure continued access to markets, schools and hospitals in the aftermaths of an adverse natural event. In addition, provision of concessional climate adaptation loans to businesses and households will not only reduce physical disaster vulnerability, but also aim to promote climate resilient livelihoods, contribute to the socio- economic well-being of the most vulnerable, and advance greater agency across gender lines. 14. Reducing Vulnerability to Climate Change. The Project directly addresses the Saint Lucia SPCR goals, as a direct application of the SPCR program and its aim to achieve transformative impact by improving national resilience to adverse natural events and longer-term impacts resulting from climate change. The Project also responds to directives established in the 2002 National Climate Change Policy and Plan, which guides a national process of addressing the short, medium and long term effects of climate change across various sectors. 12 Historical data indicates that the sub regional probability of a hurricane in any given year is approximately 18 percent, and it is widely acknowledged that natural adverse events like hurricanes can cause major economic damage, resulting in significant public expenditures. 4 II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 15. The proposed Project Development Objective (PDO) is to reduce vulnerability to natural hazards and climate change impacts in Saint Lucia. B. Project Beneficiaries 16. Generally, the proposed Project would benefit the country’s 174,000 inhabitants by reducing the risk of failure of key infrastructure, improving the overall national understanding of risk for informed decision-making, and increasing national capacity to quickly rehabilitate damaged public infrastructure following an adverse natural event. 17. Direct Beneficiaries: Individuals, including women and vulnerable groups, living in project intervention areas 13 or using public infrastructure with a reduced risk of failure from natural catastrophe will directly benefit from the proposed Project. Specifically, users of rehabilitated roads and bridges, as well as communities benefiting from riverbank protection, slope stabilization and structurally-sound health and education facilities and emergency shelters would benefit. The bulk of investments are targeted in areas where some of the highest levels of disaster vulnerability and poverty overlap, including Anse-la-Raye, Soufriere and Vieux Fort. The Project would also directly benefit households and businesses accessing concessional loans through the Climate Adaptation Financing Facility (CAFF), which aims to integrate climate resilience into assets and livelihoods. Particular attention would be paid to ensuring that CAFF finance is used to promote greater resilience across socio-economic and gendered lines. 18. Indirect Beneficiaries: Other OECS countries would indirectly benefit from the proposed Project as Saint Lucia would continue to participate in ongoing regional collaboration efforts under the Regional Disaster Vulnerability Reduction Project (RDVRP - P117871) and the Regional Caribbean PPCR. By advancing national open data infrastructure and cross-regional knowledge and information sharing, the proposed Project would facilitate increased regional collaboration on understanding risk and developing risk reduction solutions. Investments in flood defense infrastructure adjacent to the international airport would have positive spillover effects to other Caribbean island nations as continued operations would ensure aid, supplies and assistance can be both received or deployed in the immediate aftermaths of extreme hydro-meteorological events. Additionally, these investments would also enable continued regional connectivity, which is critical for intra-regional tourism, a mainstay of Eastern Caribbean economies 14. C. PDO Level Results Indicators 19. The achievement of the PDO would be measured using the following key indicators: a) Number of direct Project beneficiaries (male/female) 15; 13 These areas include the districts of Dennery, Soufriere, Anse-la-Raye, Choiseul, Vieux Fort and greater Castries. 14 Tourists traveling from the US and Europe to Saint Vincent and the Grenadines or Dominica are often required to connect through either Saint Lucia or Grenada (given these two countries are the only islands of the four meeting international standards to receive commercial air jets). 15 Aligned with PPCR Core Indicator 5: Numbers of people supported by the PPCR to cope with effects of climate change 5 b) Number of days of interrupted traffic due to landslips, flooding and other climate-related events in project areas; c) Number of schools/health centers/emergency shelters with reduced vulnerability to landslips, flooding and other climate-related events; d) Climate risk analysis reflected in transport and drainage infrastructure design 16. III. PROJECT DESCRIPTION 20. The Project aims to reduce urgent disaster vulnerability and increase long-term climate resilience in Saint Lucia by addressing the multi-faceted risks associated with hydro- meteorological events. The Project would also finance emergency reconstruction activities in light of the December 2013 floods. Forming the second phase of a regional series of projects under the RDVP, the project aims to contribute to strengthening DRM in four OECS countries and support investments and capacity building activities that foster disaster resilience across the Eastern Caribbean region. 21. The IDA credits would finance vulnerability reduction and post-disaster reconstruction activities, while the CIF/PPCR resources would be used to effect transformational change to establish long-term climate resilience. Innovative approaches would be piloted to realize such change and draw lessons learned for future replicability within Saint Lucia and internationally. 22. World Bank Value Added. The World Bank offers extensive experience and expertise in supporting the design and implementation of disaster risk reduction and climate resilience programs in Saint Lucia, other OECS countries and globally. Lessons learned from implementing previous multi-sectoral DRM projects have informed the Project design. In addition, the Bank’s convening power, ability to leverage donor partnerships, and mobilize additional funds to support scaled up vulnerability reduction and climate resilience activities in Saint Lucia further highlights the value of World Bank involvement. A. Project Components 23. The Project is comprised of the following components (see Annexes 2 and 3 for details): 24. Component 1– Risk Reduction and Adaptation Measures (US$49 million). This component would support structural and non-structural flood and landslide risk reduction interventions and climate adaptation measures to improve Saint Lucia’s resilience against current and future climatic shocks. Additionally, the component would finance the reconstruction of critical infrastructure damaged during the December 2013 flooding, using the ‘build back better’ approach. Activities would also address other potential risks (e.g. seismic) and would ensure that financed works are generally disaster resilient. Sub-projects may include the following: (i) reinforcement of flood control infrastructure; (ii) climate resilient rehabilitation of road sections, including drainage improvements, slope stabilization works and retrofit of select bridges; (iii) retrofits and climate resilient rehabilitation of priority emergency shelters; (iv) climate-resilient 16 Aligned with PPCR Core Indicator 2: Evidence of strengthened government capacity and coordination mechanism to mainstream climate resilience 6 rehabilitation of water supply infrastructure; (v) retrofit and rehabilitation of existing schools and health centers; and, (vi) preliminary assessments and technical studies required to implement such works. Additionally, relevant national plans, policies and strategies to support risk reduction and climate resilience efforts would be developed, including, inter alia: an integrated watershed management plan for flood mitigation, a rainwater harvesting pilot program, and a climate change public awareness and education strategy. 25. Importantly, technical assistance is embedded within sub-activities and include: (i) development of operational and maintenance plans (including a bridge maintenance plan); (ii) risk assessments to support engineering design options and final detailed design solutions, and (ii) integrated hazard and climate analyses to inform project designs. 26. Component 2– Technical Assistance for Improved Assessment and Application of Disaster and Climate Risk Information in Decision-Making (US$10 million). This component would support capacity building for open systems and platforms to create, share, analyze and use disaster risk and climate change data and information for improved decision making and engineering design for risk reduction and climate change adaptation. Specifically, the component would finance, inter alia: (i) the creation of a high resolution digital topographic and bathymetric model for Saint Lucia; (ii) sea level rise modelling and coastal flood and erosion risk mapping; (iii) design and deployment of meteorological, hydrological, and sea level rise monitoring networks to provide high resolution hydrologic data; (vi) deployment of an environmental health surveillance system; and (v) technical assistance and regional capacity building and training workshops to promote safe and uniform building standards and harmonize geospatial data standards across the Eastern Caribbean. 27. Data collected under this component would be used to inform investments under Component 1 (when suitable) as well as to identify and prioritize future risk reduction and adaptation investments. Data outputs would also inform the development of appropriate land use plans and provide a basis for more future flood and landslide risk management schemes. 28. Component 3– Climate Adaptation Financing Facility (CAFF)(US$5.0 million). This component is designed to establish a pilot financing mechanism meant to promote increased climate resilience under a climate adaptation financing facility (Climate Adaptation Financing Facility or CAFF), including the provision of retail loans (Sub-loans) to eligible households and private firms or businesses , to finance climate adaptation investments to build resilience of assets and livelihoods, intended to reduce risks associated with catastrophic hydro- meteorological shocks. 29. Saint Lucia Development Bank (SLDB) 17 would serve as retail bank and would on-lend to final beneficiaries – with a concerted aim of building an affordable and self-sustaining loan portfolio in climate adaptation. Based upon the initial success of the component and local demand for climate adaptation loans, consideration will be given to include other commercial 17 SLDB’s eligibility as participating financial institution was determined based on comprehensive institutional assessment and due diligence that was conducted during preparation. While the participation of private commercial banks was also considered, at the time of the assessment, there was either no commercial interest for providing loans to conduct risk reduction measures or banks were not financially fit to carry out this business. 7 banks as participating retail banks. A standalone CAFF OM would be generated. SLDB would receive systematic support to address identified gaps in its current operation and risk management structure and practices (as outlined under an institutional development plan), while additional technical assistance would be provided on an as needed basis. A detailed description of the component and associated institutional development plan are included in Annex 6. 30. Component 4– Contingent Emergency Response (US$1.0 million). This provisional component would support carrying out of emergency recovery and reconstruction subprojects under an agreed action plan of activities, which is designed as a mechanism to implement the Recipient’s response to an Emergency. The component would allow rapid re-categorization and reallocation of project financing from other projects to partially cover emergency response and recovery costs associated with a natural catastrophe. The component would only be triggered in the event of a natural disaster, either national or localized in scope. The triggering of the component is contingent upon (i) either a Declaration of a Natural Disaster or activation of the National Emergency Management Plan in accordance with the laws of Saint Lucia, particularly the Disaster Management Act (2006) or the Emergency Powers Disaster Act (CAP 14.07); and (ii) a formal request to the Bank to activate the component in accordance with the component- specific OM or an agreed action plan that would form part of the OM - which would detail the fiduciary, safeguards and any other necessary implementation arrangements. This component could also be used to channel additional disaster response funds, should they become available. 31. Component 5– Project Management and Implementation Support (US$3.0 million). Activities under this component would support strengthening the institutional capacity for Project management and implementation, including: (a) staffing the National Development Unit (NDU) and Project Coordination Unit (PCU); (b) building the technical capacity of said NDU, PCU and the SDED within the MoSDEST; (c) training of NDU, PCU and SDED staff, and strengthening the respective capacity for management, supervision, monitoring and evaluation of specific Project activities; and (d) carrying out technical and Project audits, all through the provision of technical advisory services, training, operating costs and acquisition of goods. Incremental operating costs incurred by implementing agencies would also be covered as well as those required for outside consultancies to prepare and supervise specific activities. B. Project Financing Lending Instrument 32. The lending instrument was an Adaptable Program Loan (APL) in the Parent Project (P117871) and is being implemented in the Organization of Eastern Caribbean States (OECS). However, the term APL has been retired and subsequent Projects in the series fall under the new Investment Project Financing (IPF) guidelines. Projects in Saint Vincent and the Grenadines and Grenada form IPF1, and an Additional Financing for this project was approved by the Board on May 9 2014. Saint Lucia and Dominica comprise IPF2 and IPF3, respectively. The Dominica Disaster Vulnerability Reduction Project (P129992) was approved by the Board on May 1 2014. The implementation period for the Project in Saint Lucia will be five years. 8 Project Cost and Financing 33. The Project would be financed by US$41 million equivalent in IDA Credits (US$19 million in National IDA, US$5 million in Regional IDA and US$17 million from IDA CRW), with co-financing from the CIF in the amount of a US$12 million SCF Grant, and a US$15 million SCF Loan. Table 1 summarizes project cost and financing by component. Table 1: Project Cost and Financing (in US$ million) Project Components Project IDA IDA CRW CIF Financing CIF Financing cost Financing Financing Grant Loan Component 1: Risk Reduction and 49.0 19.7 14.2 5.1 10.0 Adaptation Measures Component 2: Technical Assistance for 10.0 3.3 1.2 5.5 0.0 Improved Assessment and Application of Disaster and Climate Risk Information in Decision-Making Component 3: Climate Adaptation 5.0 0.0 0.0 0.0 5.0 Financing Facility Component 4: Contingent Emergency 1.0 1.0 0.0 0.0 0.0 Response Component 5: Project Management and 3.0 0.0 1.6 1.4 0.0 Implementation Support Total 68.0 24.0 17.0 12.0 15.0 34. Regional IDA resources have been secured as the Project is fully aligned with Regional IDA objectives as summarized below and detailed in Table 6 of Annex 2: • Involve three or more countries: The Project is the second of a three part series of disaster vulnerability reduction projects in three other Eastern Caribbean countries: Dominica, Grenada and Saint Vincent and the Grenadines; • Benefits, either economic or social, spill over country boundaries: Flood defense investments at the international airport will better ensure regional connectivity, which is critical for regional disaster resilience, not only for emergency response purposes but also for continued intra-regional tourism connectivity, a mainstay of Eastern Caribbean economies. Additionally, data management activities under Component 2 will be aligned with parallel activities in Dominica, Grenada and Saint Vincent and the Grenadines; • Clear evidence of country or regional ownership: The Project is being prepared as part of the country’s participation in the Regional Pilot Program for Climate Resilience (PPCR); • Provide a platform for a high level of policy harmonization between countries: The capacity building element integrated into civil works investments will not only help ensure proper design, management and maintenance of financed infrastructure, but will be carried out through regional activities meant to mainstream safe and uniform building standards across seven OECS countries. C. Lessons Learned and Reflected in the Project Design 35. Project design takes into account lessons learned from the Saint Lucia and OECS DRM 9 portfolios, the Bank’s global experience with DRM and other multi-sector operations, ongoing regional and global PPCR programs as well as well as the IDA 16 Mid-Term Review. 36. Significant preparatory work during project preparation can result in implementation benefits by the time of project effectiveness: Experience from implementing multi-sectoral projects – including those financed by regional IDA finance and phase 1 of the RDVRP – has shown the benefit of dedicating substantial time during preparation towards: (i) drawing consensus amongst implementing agencies (IAs) regarding project activities and coordination; (ii) building local fiduciary and M&E capacities; and (iii) providing the PCU with as-needed training/technical assistance. The Saint Lucia Hurricane Tomas Emergency Recovery Project (HTERP-P125205) and the ongoing RDVRPs in SVG and Grenada further demonstrated the importance of project readiness by the time of effectiveness. A Project Preparation Advance (PPA) was secured to begin early preparation of designs and studies of works, while early cost- estimating can help reduce the risk of overruns and/or budget shortfalls. All planned civil works have included budget contingencies for potential increases in project scope. 37. Climate-resilient retrofitting entails comprehensive interventions and should be accounted for in the initial design of works. Experience from DMP II has shown that climate- resilient retrofitting entails a broader set of activities beyond simply installing a hurricane-proof roof and windows, for example; other items to consider could include drainage infrastructure, slope stabilization and water storage systems. Such consideration is critical in the early design phase as broader interventions pose budget and time implications. The Project therefore includes technical trainings to develop this multi-faceted awareness and to introduce climate-resilient retrofitting standards in project design, costing and associated bill of quantities. Doing so reduces risks of inadequate designs, implementation delays and budget shortfalls. 38. Effective DRM entails systematic behavioral change. The Implementation Completion Report for DMP II highlights the importance of establishing a culture of prevention, while noting disaster risk reduction requires behavior change spawning from education, awareness raising and empirical learning from implementing actual works. Such change entails accounting for disaster risk when designing projects. Saint Lucia lacks sufficient capacity to fully interpret hazard and risk information, and integrate it into territorial and project planning. 18 Components 2 and 5 therefore include hazard and risk data collection activities and corresponding technical assistance to increase local capacity on the interpretation and use of such information. 39. Investing in infrastructure maintenance is cost-effective DRM. A damage assessment carried out in Saint Lucia post-Hurricane Tomas (November 2010) concluded that Bank- financed risk reduction investments adequately served their purpose when faced with a 1-in-500 year rainfall event. 19 While the retrofitting, rehabilitation, and new construction of works in themselves proved effective, regular maintenance over the past decade is what ensured the resilience of such investments. Component 1 therefore requires individualized maintenance plans 18 Experience drawn from the Central American Probabilistic Risk Assessment (P101639) demonstrate that accessing relevant, accurate and sufficient amounts of data represents significant limiting factors when aiming to successfully integrate risk assessment into project design and decision-making. 19 See World Bank, Saint Lucia Hurricane Tomas Rapid Damage Assessment (2010). 10 are generated for each retrofitting, rehabilitation and mitigation work. Both national and regional maintenance capacity building programs are also included. 40. Meeting a government’s immediate liquidity needs is critical in ensuring timely post- disaster response. Most governments in the region experience difficulty quickly raising emergency funds in the three to four months following a catastrophe. Resources are often sourced from other line ministry budgets, thereby setting back development programs. While parametric insurance payouts have been critical in a disaster’s immediate aftermaths (e.g. CCRIF), such payments may not suffice. The Project includes an emergency contingency component to finance response and recovery needs. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 41. The MoF would be the primary GoSL counterpart and serve as the overarching institution responsible for project execution. The MoF is experienced in executing Bank-financed projects and coordinating various line ministries – a critical ability given the Project’s cross-sectoral nature and broad range of stakeholders involved in implementation. The existing Project Coordination Unit (PCU) within the MoF will be responsible for day-to-day project management, coordinate project implementation and serve as the intermediary between the Bank and IAs. The PCU will further be responsible for fiduciary and safeguards compliance reporting to the Bank on safeguards, financial management, procurement, audit and disbursement aspects and on overall project progress, with inputs from the IAs. 42. The IAs would be responsible for the preparation of technical specifications, bills of quantities and terms of reference relating to their respective activities. Generally, the MIPS&T would be the technical IA responsible for coordinating and managing all civil works activities. The MoSDEST would be the technical IA responsible for ensuring project activities remain aligned with the SPCR goals. As the country’s focal point on climate change issues, the MoSDEST would also be responsible for reporting on PPCR activities within the Project, with inputs from the IAs, and on the overall Program. SLDB would be the intermediating financial institution that would administer the sub-loans under the CAFF/Component 3. 43. To foster communication and coordination between the IAs and key government stakeholders, the MoF would convene a Project Coordination Committee (PCC). The National Development Unit (NDU) within MoF will serve as Secretariat for the PCC, which would be responsible for ensuring that the Project is in line with national development priorities. 44. For the implementation of regional capacity building and knowledge sharing activities related to mainstreaming safe and uniform construction standards and climate resilience engineering, the respective agencies responsible for public works and the Chief Technical Officers Association for the OECS would be responsible. For regional activities related to geo- spatial data management and sharing and harmonization of data standards across the Eastern Caribbean, the Project would engage, relevant regional agencies, which would work in partnership with the respective Physical Planning units of the participating OECS islands. 11 B. Results Monitoring and Evaluation 45. The results framework, presented in Annex 1, has been developed in coordination with GoSL. Indicators have also been reviewed vis-à-vis the PPCR core indicators to ensure alignment and facilitate reporting of results at program level. The Project would finance M&E expertise from the start of implementation, to collect baseline data and targets for the indicators related to component 3 that are still to be determined, as well as validate the qualitative and quantitative baselines and targets proposed for the Project’s monitoring indicators within the results framework 20. 46. The NDU, which is the entity responsible for M&E for all public programs at the national level, would be responsible for overall M&E of the Project, consolidating all progress reports generated by the IAs. The PCU will report to the World Bank on a quarterly basis on progress achieved, and annually on project performance indicators, based on the NDU’s monitoring reports. For PPCR-specific activities, the Climate Change Coordinator within MoSDEST would monitor and report according to the CIF M&E guidelines. 47. For Component 3, SLDB would submit semi-annual reports to evaluate progress achieved against select indicators as well as semiannual financial management reports. SLDB’s financial performance would be monitored through independent auditors’ reports and separate management letters confirming adherence to prudential norms. C. Sustainability 48. Physical Sustainability: The structural investments will be designed to be more resilient to physical conditions and the impacts of adverse natural events and climate change than they are currently, which will assure improved physical sustainability of the infrastructure. The quality of work (including reinforcement of flood control infrastructure, rehabilitation of roads, bridge expansion, slope stabilization and retrofits of health and school facilities) will be assured through the use of international best practices for engineering designs, construction supervision and technical audits. In addition, designs will account for demographic, topographic, hydrologic, seismic, and land use/cover changes. Appropriate maintenance plans for investments would also be prepared through project-financed technical assistance to better ensure continued and effective use. A maintenance strategy will also be developed and detail an appropriate maintenance management system (with corresponding funding streams detailed). 49. Financial Sustainability: Global experience has shown that investments in prevention are more cost-effective than ex-poste reconstruction and/or retroactive interventions meant to achieve climate resilience. Following these lessons, the Project will proactively invest in interventions meant to demonstrate long-term financial benefits – especially in the event of a catastrophe – as well as build capacity within the GoSL to account for disaster vulnerability reduction and climate resilience in public investment decision-making processes. So, the physical investments being made will reduce the annual contingent liability posed by disasters, 20 The baseline and target values for the indicators related to the sub-loans will be defined following the completion of the CAFF demand analysis, and prior to the effectiveness of the Project. 12 and therefore reduce the fiscal burden on government accounts. For Component 3, to prevent market distortions and to ensure that the sub-borrowers gain appropriate returns from investments made under the Project, SLDB would follow its pricing policy according to its cost of capital and associated risks within the particular type of projects to be financed. 50. Institutional Sustainability: A key project outcome would be improved capacity of line ministries to account for disaster and climate risk in public investments, infrastructure maintenance and general long-term planning. Of particular emphasis is analytical and technical support to MIPS&T to enhance its approach to flood control and slope stabilization – from a retroactive process of ad hoc rehabilitations to a data-driven decision making approach that enables strategic long-term planning, operations and maintenance. V. KEY RISKS AND MITIGATION MEASURES 51. Potential risks to achieving objectives, along with corresponding mitigation measures, are detailed in Annex 4: Operational Risk Assessment Framework (ORAF). The ORAF will be used to monitor and reassess risks and review mitigation measures during project implementation. A. Risk Ratings 52. Risk ratings are summarized in Table 2. Table 2: Summary of Risks and Risk Ratings Risk Category Rating Stakeholder Risk Low Implementing Agency Risk - Capacity Substantial - Governance Low Project Risk - Design Substantial - Social and Environmental Moderate - Program and Donor Low - Delivery Monitoring and Sustainability Moderate Others Substantial Overall Implementation Risk Substantial B. Overall Risk Rating Explanation 53. The GoSL has demonstrated clear commitment to the Project, with significant preparatory work carried out under the ongoing HTERP and with the use of the PPA. The current administration, elected in November 2011 for a five-year term, has endorsed the Project. 54. Overall Implementation Risk remains Substantial as a result of the multi-sectoral nature 13 of the Project, the relatively large project size 21, novelty and complexity of the credit line component (Component 3) and the low capacity of the financial intermediary institution SLDB, which lacks experience with Bank policies and procedures. To address the risk related to the project size, including project and contract management capacity, the Project would finance additional staff and training of existing personnel. A Project Coordination Committee (PCC) will be established to ensure coordination mechanisms across national and regional agencies. To strengthen SLDB’s capacity to serve as a financial intermediary and manage the line of credit (LoC), an institutional development plan has been agreed upon with SLDB. The Project would closely monitor implementation of the proposed measures to ensure that SLDB's capacity and governance mechanisms are strengthened to effectively administer the sub-loans. VI. APPRAISAL SUMMARY A. Economic Analysis 55. An economic analysis was conducted with a focus on select works under Component 1 and demonstrated the project to be economically viable, with net benefits of US$9.4 million and rate of economic returns of 21 percent. Table 3 below summarizes analysis results by subproject. The full economic analysis can be found in Annex 7. Table 3. Cost-Benefit Analysis for Four Subprojects Present Value of Flows (Thousand US$) Subproject Internal Rate Costs Benefit Net Benefit of Return Choc Bridge 1,589 7,051 5,462 23.8% Marchand Riverbank 1,639 2,788 1,149 19.1% Community Centers 503 588 85 13.0% National Highway 2,034 4,699 2,665 21.5% Total Sample 5,764 15,125 9,361 21% B. Technical 56. Proposed works and institutional strengthening activities have been evaluated to ensure consistency with the short and long-term objectives of the Project. Specific activities have been included based on a no-regrets approach and on GoSL identified priorities. During project preparation, all proposed activities were reviewed for technical merit, and a detailed assessment was conducted with each respective ministry or agency to refine the proposed activity. In all cases, clear relationships between proposed activities and the project objective were identified, and supporting engineering and safeguard activities have been accounted for in the proposed budget. While activities have been evaluated based upon climate-related disaster risks, seismic risk will also be accounted for in the design and evaluation of financed works. C. Financial Management 57. The Bank has conducted a financial management (FM) capacity assessment which 21 This operation is the largest Bank-financed operation in Saint Lucia. 14 concluded that the PCU, which has considerable experience implementing Bank-financed projects, has adequate capacity to be responsible for the Project’s overall FM, including ensuring project funds are used for the purpose intended by the various IAs. For component 3, a separate FM capacity assessment of SLDB was carried out, and concluded that SLDB had adequate checks and balances, staffing and accounting systems in place to carry out FM responsibilities for the CAFF sub-loans. D. Procurement 58. The PCU within the MoF will be responsible for the procurement under the Project. The Bank conducted an assessment of the PCU’s procurement capacity, which was found to be adequate to manage the procurement of the Project, including preparation of bidding documents, inviting bids, evaluation of bids/proposals and contract awards, in collaboration and with inputs from the IAs. In the case of Component 3, procurement would be carried out in accordance with well-established local private sector procurement methods or commercial practices, acceptable to the Bank. Procurement arrangements for Component 3 would be elaborated in the CAFF OM. 59. Procurement Plan: For each contract financed under the Project, the various procurement or consultant selection methods, the estimated costs, prior/post review requirements, and time frame have been agreed upon between the GoSL and the Bank in the initial Procurement Plan dated April 15, 2014. The Procurement Plan would be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. E. Social (including safeguards) 60. The project Social Assessment confirmed that beneficiaries welcome the project and anticipated positive social impacts. Perceived impacts include a greater sense of safety and security as a result of improved infrastructure and facilities as well as increased community participation as a result of renovated community centers. A beneficiary feedback mechanism would be devised at project start, which would be implemented throughout the project lifespan. A Grievance Redress Mechanism, as articulated in the Resettlement Policy Framework (RPF), will be used to address potential concerns of project beneficiaries. 61. The Involuntary Resettlement Safeguard Policy (OP/BP 4.12) is triggered as planned works (e.g. road rehabilitation, drainage systems) could lead to public acquisition of land and subsequently impact beneficiary assets or access to assets. As such, an RPF has been developed, disclosed in country and on the World Bank's external website, and was publically consulted in Saint Lucia. F. Environment (including safeguards) 62. The Project has been classified as Category B in accordance with World Bank Environmental Assessments Policy (OP/BP 4.01), as proposed activities under Component 1 primarily involve rehabilitation works and anticipated potential environmental impacts are considered short-term, not significant, and readily preventable or manageable with standard measures. With regards to Component 3, the relevant policies and procedures of SLDB were 15 reviewed and agreement was reached whereby any sub-projects of Category A nature and those potentially involving land acquisition would be excluded under the CAFF. 63. The GoSL has prepared a project-level Environmental Assessment (EA) combined with an Environmental Management Framework (EMF) – both of which have been disclosed in- country and on the World Bank's external website and publicly consulted. Safeguards policies for Natural Habitats (OP/BP 4.04) and Physical Cultural Resources (OP/BP 4.11) have been triggered as a precaution to ensure the development and inclusion of clear screening criteria related to natural habitats and physical cultural resources. (See Annex 3 for detail). 16 Annex 1: Results Framework and Monitoring . Country: Saint Lucia Project Name: Saint Lucia Disaster Vulnerability Reduction Project (P127226) . Results Framework . Project Development Objectives . PDO Statement The Project Development Objective (PDO) is to reduce vulnerability to natural hazards and climate change impacts in Saint Lucia. These results are at Project Level . Project Development Objective Indicators Data Responsibility Cumulative Target Values Source/ for Unit of Methodolog Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 End Target Frequency Measure y Semi- annual Direct project Semi- Number 0.00 0.00 2000 10000 40000 169000 Project PCU, SDED beneficiaries Annual Progress Reports Semi- Percentage annual Female Semi- Sub-Type 0.00 0.00 51 51 51 51 Project PCU, SDED beneficiaries Annual Supplemental Progress Reports 17 Number of days Semi- of interrupted annual traffic due to Project landslips, Semi- Progress Number 20.00 20 15 15 10 5 PCU; MIPS&T flooding and Annual Reports; other climate- MIPS&T related events in Supervision project areas Reports Number of schools/ health centers and emergency Semi- MIPS&T, shelters with annual Ministries of reduced progress Education, vulnerability to Semi- Number 0.00 0 2 5 8 8 report; Health and landslips, annual MIPS&T Social flooding and supervision Transformation; other climate- reports PCU related events as a result of project interventions Climate risk analysis Semi- reflected in Annual Semi- PCU, MIPS&T, transport and Yes/No No No No Yes Yes Yes Project annual WASCO drainage Progress infrastructure Reports design . 18 Intermediate Results Indicators Responsibility Cumulative Target Values Data Source/ for Unit of Methodology Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 End Target Frequency Measure Semi-annual Project Roads Progress Semi- rehabilitated, Kilometers 0.00 0 0 0.2 0.35 0.5 Reports; PCU; MIPS&T annual Non-rural MIPS&T Supervision Reports Semi-annual Project Storm drains Progress constructed Semi- Meter(m) 0.00 TBD TBD TBD TBD TBD Reports; PCU; MIPS&T under the annual MIPS&T project Supervision Reports Number of official policies, strategies, studies produced Semi-annual by public sector Semi- Project PCU; MIPS&T; Number 0.00 0.00 2.00 2.00 3.00 4.00 workers which Annual Progress SDED, MoPP reference Reports; climate change- related DRM studies, 19 technical assessments, standards and guidelines generated from the Project Number of Government Semi-annual ministries/agenc Semi- Project PCU; MoPP; Number 0.00 3.00 4.00 6.00 6.00 8.00 ies connected to annual Progress ICT a spatial data Reports sharing platform Semi-annual Number of Project Government Progress officials trained Reports PCU; Ministry in spatial data Semi- Number 0.00 10.00 20.00 40.00 50.00 50.00 Inventory of Physical management annual report of Planning and data instrumentati analysis under on/software the Project installed Meteorological and Semi-annual PCU; Met hydrological, Semi - Project Services, monitoring Yes/No No No No No Yes Yes annually Progress SDED, and networks Reports WRMA installed and active LiDAR mapping Semi- Semi-annual PCU; Ministry Yes/No No No No Yes Yes Yes of the entire annually Project of Physical 20 country Progress Planning completed Reports CAFF portfolio Semi-annual is fully Project Semi- PCU, SLDB, disbursed in the Percentage 0.00 0.00 30 70 90 100 Progress annually SDED form of climate Reports; adaptation loans SLDB report Number of Semi-annual active and fully Project Semi- PCU; SLDB, repaid Number 0.00 0.00 TBD TBD TBD TBD Progress annually SDED adaptation loan Reports; accounts SLDB report Semi-annual Total number of Number Project Semi- PCU; SLDB, approved Sub-Type 0.00 0.00 TBD TBD TBD TBD Progress annually SDED borrowers Breakdown Reports; SLDB report Semi-annual Percentage Project Female Semi- PCU; SLDB, Sub-Type 0.00 0.00 51 51 51 51 Progress borrowers annually SDED Supplemental Reports; SLDB report Semi-annual Average volume Project US Dollar Semi- PCU, SLDB, of adaptation 0.00 TBD TBD TBD TBD TBD Progress Amount annually SDED loans Reports; SLDB reports Operations Semi- Semi-annual PCU; Ministry Yes/No No No Yes Yes Yes Yes Manual for this annually Project of Finance; 21 component Progress NEMO prepared to Reports facilitate disbursement in the event of an emergency Time taken to disburse funds In the PCU; Ministry in the event of Weeks 4.00 4.00 4.00 4.00 4.00 4.00 event of an of Finance an eligible emergency emergency . 22 Annex 2: Detailed Project Description SAINT LUCIA: Disaster Vulnerability Reduction Project BACKGROUND 1. The Project aims to support the country’s ongoing efforts to move forward towards a more climate resilient future (Refer to Box 1). In the last 2 decades, disasters have had devastating social and economic impacts, which are driving the Government’s interest to build resilience to climate-related risks. As global climate change continues to increase the frequency and intensity of climactic events, many of Saint Lucia’s most vulnerable – particularly the rural poor and agriculturalists – are expected to be impacted disproportionately. 22 Tropical Storm Debbie in 1994 and the Tropical Wave in 1996, for example, resulted in cumulative damages of US$93.1 million to property and infrastructure across the island. Hurricane Tomas in 2010 affected major sectors of the economy and diminished growth, with the total impact estimated at US$336 million or roughly 34 percent of Saint Lucia’s GDP. 23 Most recently, the passage of a low-level trough in December 2013 resulted in combined damage and losses of US$99.8 million, equivalent to 8.3 percent of the island’s GDP 24. (A summary of damage and loss by sector is detailed in Table 4 below.) In addition to devastating large-scale disasters, small-scale flooding is endemic in low-lying areas and coastal villages already suffering from socio-economic vulnerabilities. Box 1: Saint Lucia Advances towards greater Climate Resilience Saint Lucia is fully cognizant of its imminent climate change related threats, and has subsequently undertaken a number of initiatives at the national and community levels over the last two decades. In 1993, Saint Lucia ratified the UN Framework Convention on Climate Change (UNFCCC). The Cabinet- appointed National Climate Change Committee has been functioning since 1998, comprises key governmental and nongovernmental organizations, and aims to support the mainstreaming of climate change considerations into relevant national policies, strategies, and plans. Importantly, Saint Lucia was among three countries in the region to adopt a comprehensive adaptation framework, which led to the piloting of a three-phased adaptation program funded by the Global Environment Facility, from 1998 to 2007. An important outcome of this engagement was the development of the National Climate Change Policy and Plan, adopted by the Cabinet in 2002. Additionally, Saint Lucia (along with five other Caribbean countries) was invited to participate in the regional Pilot Program for Climate Resilience (PPCR) for the Caribbean, one of the targeted programs of 22 While the agriculture sector represents 3.9% of GDP (World Bank, 2012), it nevertheless employs roughly 11% of Saint Lucia’s workforce. (Saint Lucia Statistical Digest, 2011). As a result of the recent Christmas Trough in 2013, the agriculture sector incurred an estimated US$ 12.5 million in damages and losses – equivalent to approximately 1% of GDP. (Saint Lucia Damage and Loss Assessment, Working Draft, January 2014) 23 ECLAC/UNDP, Saint Lucia: Macro Socio-Economic and Environmental Assessment Report: Towards Resilience Following the Passage of Hurricane Tomas, December 2010. 24 According to the WB-GoSL joint rapid damage and loss assessment conducted in January 2014, overall damage was estimated at approximately US$ 80 million while losses were assessed at an additional US$ 19.85 million. The impact of the disaster event was concentrated in geographical areas with the highest levels of poverty, including Anse-La-Raye and Soufriere with 44.9 percent and 42.4 percent of the population living in poverty, compared to the national average of 28.8 percent (SLU CPA, 2005/6). Significant damages were also experienced in Vieux Fort, which retains one of the highest levels of extreme poverty (4.8 percent), compared to the national average of 1.6 percent (SLU CPA, 2005/6). 23 the Climate Investment Funds (CIF). As a participant, Saint Lucia developed its national Strategic Program for Climate Resilience (SPCR), 25 a five year strategy to build the country’s resilience to climate change impacts, through the following priority areas: (i) human welfare and livelihood protection; (ii) integrated natural resource protection, conservation, and management to promote sustainable development; (iii) building of resilience through business development, innovation, and productivity enhancement; (iv) capacity building and institutional strengthening; and (v) reduction of risk to climate- related disasters. 2. Developed under a comprehensive, multi-sector framework, the Project would finance urgent structural disaster risk reduction and adaptation interventions in different sectors, as identified and prioritized by the Government. The Project would also support the country’s reconstruction and recovery efforts in responding to the December 2013 disaster. In addition, significant technical assistance, institutional strengthening and capacity building efforts would complement investments in physical infrastructure. The Project would also integrate an emergency recovery and rehabilitation mechanism component, Contingent Emergency Response, that would complement existing post-disaster financing options, and would help manage this residual risk. This mechanism could be triggered in the event of an adverse natural event, following a declaration of national emergency. Table 4. Summary of Damage and Loss by Sector ($ million) Sectors Damage US$ Loss US$ Total US$ % Total Loss & (Millions) (Millions) (Millions) Damage Productive Agriculture $9.21 $3.71 $12.92 12.9% Tourism $0.0 $2.11 $2.11 2.1% Commerce $0.4 NE $0.42 0.4% Infrastructure Water and Sanitation $2.30 $4.10 $6.40 6.4% Transportation $68.80 $3.10 $71.90 72.3% Electricity Not Evaluated (NE) NE NE NE Telecommunication $0.12 $0.41 $0.53 0.5% Social Housing $2.15 $2.05 $4.20 3.8% Education $0.80 $0.19 $0.99 1.0% Health $0.24 $0.13 $0.37 0.4% Total $80.03 $19.85 $99.88 100% 3. The Project will follow a “no-regrets” approach where investments are chosen based on a high risk of structural failure during a 10-year event (Category 1 hurricane, or M7.0 earthquake) in the case of buildings and bridges, or where annual flooding occurs in the case of flood management and urban drainage. 25 The Saint Lucia SPCR was developed under the leadership of the GoSL through a highly consultative process and endorsed by the PPCR sub-committee on June 29, 2011. See the CIF website for more details on the SPCR: https://www.climateinvestmentfunds.org/cifnet/?q=country/saint-lucia 24 PROJECT COMPONENTS 4. The PDO will be achieved through the following five mutually reinforcing components: COMPONENT 1: Risk Reduction and Adaptation Measures (US$49 million: US$19.7 million IDA; US$5.1 million SCF Grant; US$10.0 million SCF Loan; US$14.2 million CRW). 5. This component would be designed to implement urgent risk reduction and climate adaptation investments that have been identified and prioritized by the GoSL. Subprojects would include the following: Subcomponent 1.1 – Rehabilitation of Marchand Riverbank Protection (US$2.6 million): 6. The Marchand River flows through a highly urbanized area in Castries. Investments would involve critical reinforcement to the existing structures, approximately 700 meters of riverbank stabilization, and 300 meters of new riverbank construction to withstand future floods. The current construction of some of the walls along the riverbanks is not continuous, with no protection or reinforcement. The works along the riverbanks would be done in a continuous manner, to prevent the occurrence of scouring in the sections of the river where isolated walls have been built, and ensure the overall stability of the structures. General lack of maintenance is noticeable on the current structure, with much vegetation growth on the walls, and sedimentation occurring along the riverbeds. A maintenance plan would be subsequently developed to ensure the stability and sustainability of the rehabilitated structure. Sub-Component 1.2 – Flood Mitigation works at the Hewanorra International Airport (US$5 million). 7. The floods of December 2013 demonstrated the disaster vulnerability of Hewanorra International Airport (UVF), which suffered from breaches of adjacent levees. Subsequent flooding shutdown the airport for close to 42 hours spanning from December 24 evening to December 26 afternoon. Regional connectivity is critical in ensuring regional disaster resilience, not only for a country receiving emergency aid and assistance, but also for other countries in need. Investments in flood defense infrastructure adjacent to UVF will therefore have positive spillover effects to other Caribbean island nations as continued operations will ensure aid, supplies and assistance can be both received or deployed in the immediate aftermaths of extreme hydro-meteorological events. In addition, as tourists traveling from the US and Europe to SVG or Dominica are often required to connect through either Grenada or Saint Lucia (given these two countries are the only islands of the four meeting international standards to receive commercial air jets). Thus, safeguarding the UVF runway is critical to regional economic activity, especially in the aftermath of a natural hazard event. Sub-Component 1.3 – Road and Bridge Rehabilitation through Slope Stabilization and Drainage Improvement (US$25.85 million): 8. Unstable, high-risk road stretches would be made safe, particularly through slope stabilization (such as replacing existing retaining walls with new structures) and drainage 25 improvement works. In particular, interventions would focus on highly vulnerable segments of road along the national highway, which would be stabilized against landslides where road embankments were cut off due to past landslides. In addition, roads damaged as a result of the December flooding would be rehabilitated. These investments aim to reduce direct loss to transport infrastructure, indirect economic losses due to detours, and increase the effectiveness of post disaster response. Possible interventions include the following (i) Slope stabilization and road rehabilitation along the Western Road (Sections between La Croix Manigot and Anse Le Raye, and between Anse Le Raye and Canaries), and Bagatelle and Old Victoria Roads (US$5.45 million); (ii) Road rehabilitation along the East-Coast Highway (Sections between Vieux-Fort and Micoud) (US$9.3 million); (iii) Improved drainage systems along select roads in Flood Prone Areas (US$2.2 million); (iv) Integrated slopes and landslides stabilization at various locations; (v) Rehabilitation of Choc Bridge (US$6.2 million); and (vi) Building stock of emergency Bailey-type bridges (US$1 million). Sub-component 1.4 – Retrofitting of Select Priority Emergency Shelters (US$1.5 million) 9. This sub-component would involve the retrofitting of select community centers which serve as priority emergency shelters in the event of an adverse natural event or emergency, reducing vulnerability of the people in the project locations. These shelters may include community centers from the following list: Piaye, Babonneau, Marchand or La Fargue. Preliminary assessments of these shelters indicated that all would require seismic and hurricane resilient rehabilitation. The design process would involve community consultation to ensure that local needs are identified and captured at the design stage. Sub-Component 1.5 – Rehabilitation or retrofitting of Water Supply Systems (US$2.0 million) 10. This sub-component may include, inter alia: (i) Climate resilient rehabilitation of water supply infrastructure in Dennery, Castries, Louisy and Gros-Islet (US$1.2 million); (ii) Construction of a storage facility for securing stock from floods and deterioration caused by exposure to direct sunlight (US$400,000); (iii) Redesign and Supervision of construction of Vanard Intake (US$100,000); and (iv) Procurement and Installation of Meters for Non-Revenue Water (NRW) Programme (US$300,000). Sub-Component 1.6 – Reconstruction or Rehabilitation of Schools and Health Centers (US$11.5 million) 11. Investments will be made to (a) reconstruct and rehabilitate select health centers and school facilities (that double as emergency shelters) that have been partially and totally damaged due to flooding; and (b) retrofit select facilities that have been identified as highly vulnerable to flooding and landslides to build their climate resiliency. Improvements to slope stability and flood mitigation investments will promote education continuity as schools will not need to close and also will protect the students’ lives. Identified facilities include, inter alia: (i) Dennery Infant School (US$2.2 million); (ii) Dennery Primary School (US$600,000); (iii) Dennery Polyclinic (US$4.8 million); and (iv) Soufriere Hospital (US$2.42 million); In addition, damaged furniture & equipment (US$1.5 million) would also be replaced for each of these facilities, as needed. 26 12. These reconstruction and rehabilitation activities would be informed by disaster and climate risk information, and would apply the build back better approach. Sub-Component 1.7 – National plans, policies, strategies and technical assistance to support risk reduction and climate resilience efforts (US$1.5 million) 13. In addition to physical risk reduction interventions, non-structural measures would also be implemented to build Saint Lucia’s climate resilience. This proposed sub-component may include, inter alia: (i) Development of a climate resilient integrated Watershed Management framework and Plan for specific watersheds prone to flooding; (ii) Development of National Wastewater Management Strategic Plan; ( iii) Rain Water Harvesting Pilot Program: (iv) Climate Change Public and Education Awareness Strategy; (v) Development of Infrastructure maintenance policy and strategy26; (vi) Development of Bridge Maintenance Management System; (vii) procurement of various equipment for Institutional Strengthening of Materials Laboratory at MIPS&T; and (viii) capacity building and training to the MIPS&T. COMPONENT 2: Technical Assistance for Improved Assessment and Application of Disaster and Climate Risk Information in Decision-Making (US$10 million: US$3.3 million IDA; US$5.5 million SCF Grant; US$1.2 million CRW). 14. This component would support capacity building for open systems and platforms to create, share, analyze and use disaster risk and climate change data and information for improved decision making and engineering design for risk reduction and climate change adaptation. Specifically, the component would finance, inter alia: (i) the collection of high resolution LiDAR data and creation of a high resolution digital topographic and bathymetric model for Saint Lucia, (ii) sea level rise modelling and coastal flood and erosion risk mapping; (iii) capacity building for meteorological services, including design and deployment of meteorological, hydrological, and sea level rise monitoring networks to provide high resolution hydrologic data, training and procurement of equipment; (vi) deployment of an environmental health surveillance system; (vii) evaluation of the health of coral reef systems and rapid monitoring methods for water quality and coral reef; (viii) enhancing the capacity of the Fire Department and NEMO, including review of operations and allied services; and (ix) strengthening of the country’s GIS analysis capacity to maintain risk and spatial data management system, through technical assistance, training and procurement of equipment. 26 MIPS&T is in the process of developing a maintenance policy and strategy in consultation with the MoF for all infrastructure including, roads, bridges, slope stabilization, drainage structure and public buildings. Currently, the GoSL does not have a strategic maintenance policy and, as such, the funds allocated for the maintenance of infrastructure by the MoF meets less than 50 percent of required maintenance funding. The lack of maintenance adversely affects the design life of infrastructure and risks infrastructure sustainability. Under this subcomponent, consulting services would be funded to carry out a preliminary needs assessment, preparing budget estimates, establishing priorities and strengthening the overall maintenance management system. The consultancy would include: (a) options regarding resource generation to ensure a stable and adequate flow of the required maintenance funding through road user charges, licensing fees and/or other revenues; (b) establishment of a maintenance management system; (c) strengthening institutional capacity of the public sector and implementation capacity of the private sector to implement maintenance programs in quantity and quality; and (d) introduce new techniques of procuring maintenance contracts using performance based procedures. Based on the consultancy’s findings, a short term, medium term and long term action plan would be developed and implemented under the Project. 27 15. The data collected under this component would be used to inform investments under Component 1 (when suitable) and for identifying and prioritizing future mitigation investments and informing development of appropriate land use plans, and could serve as a basis for planning and designing more comprehensive and sustainable flood and landslide risk management schemes in the future. 16. In addition, this component would finance technical assistance and regional capacity building and training workshops to: (a) promote safe and uniform building standards and disaster resilience engineering; and (b) harmonization of geospatial data standards across the Eastern Caribbean, building on the regional engagements/activities launched under the ongoing RDVRPs in SVG and Grenada. As all four Projects within the series enter implementation phase, the proposed Project would continue to promote regional connectivity and would inform other OECS countries through participation in, and hosting of regional knowledge sharing activities such as regional workshops, capacity building, webinars and just-in-time knowledge exchange to improve engineering practices and harmonize spatial data management. COMPONENT 3: Climate Adaptation Financing Facility (US$5.0 million SCF Loan) 17. This component would assist in the creation of a Climate Adaptation Financing Facility (CAFF) to provide affordable loans to households and private enterprises for investments and/or livelihood activities that support vulnerability reduction and adaptation to catastrophic hydro- meteorological events. Consultations conducted during the preparatory phase of the PPCR with private sector and civil society highlighted the need/demand for financing options for private businesses and individuals to build resilience to climate change. The Saint Lucia Development Bank (SLDB) 27 will serve as a retail bank and on-lend to final beneficiaries. This will allow SLDB to offer loans, which would incentivize pre-emptive climate adaptation by private entities. Based upon the initial success of the component and local demand for climate adaptation loans, consideration will be given to include other commercial banks as participating retail banks. 18. The GoSL conducted a preliminary feasibility study of the CAFF, through stakeholder consultation during the SPCR process. The assessment highlighted the need/demand for financing options for private businesses, community groups and individuals to build resilience to climate change. The Bank also conducted a preliminary assessment which informed the preliminary design of the component. A comprehensive nationwide survey of 1500 households and a business survey are further scheduled to be launched to generate much needed data related to the physical, socio-economic and gendered vulnerabilities to disaster at the household level. A business assessment will be carried out in parallel, to understand potential demand of small, medium and large businesses to take on climate adaptation loans. Quantitative and qualitative data generated from the surveys and business assessment will help ensure climate adaptation loans are designed to account for on-the-ground realities related to access to credit and the local financial landscape. Gender is a critical theme which is tied into these analyses and gender- related findings will serve as a cornerstone of loan design, while also contributing towards the physical resilience of households and private businesses to disasters and climate change. 27 SLDB’s eligibility as a participating financial institution was determined based on comprehensive institutional assessment that was conducted during preparation. SLDB was selected given its willingness as well as government mandate to provide concessionary finance for climate adaptation. 28 19. This component would consist of two sub-components: Sub-component 3.1 – Adaptation Loan Facility (US$4.5 million) 20. This sub-component would consist of a revolving loan facility within the SLDB for on- lending to households and private businesses for climate adaptation investments. Agriculture, Housing, Industry, Tourism and Services have been identified as sectors with potentially highest demand for adaptation loans. 21. Eligible investments under the CAFF would be determined upon completion of the above-mentioned comprehensive analysis of household and business need and demand for such investments. Table 5 below provides a sample list of potential eligible investments that could be financed by the CAFF. Table 5: Examples of potential Investments under the CAFF Agriculture Housing Manufacturing/Tourism/Services Drought resistant crops Guttering and fittings Energy efficient equipment Rain water harvesting Retaining walls Rain water harvesting Water holding facilities Drainage Water holding facilities Drainage Rain water harvesting Alternative technologies Soil stabilization Water holding facilities Retrofitting of Facilities Retrofitting of Greenhouses Retrofitting of roofs Retrofitting of Storage Retrofitting of houses, Facilities Structural re-enforcement Selection Criteria of the IFI/SLBD: 22. The SLDB was selected as the intermediating financial institution (PFI) based on a due diligence assessment which was conducted during Project preparation. Participation of private commercial banks for the facility was also considered during project preparation. However, there was either no commercial interest or capacity of private banks to provide loans for implementing disaster risk mitigation measures and intermediate the World Bank credit line. 23. Within three years since its launch, SLDB has put in place critical policies and sound operational processes, notably in credit and risk management elevating its eligibility as financial intermediary. SLDB’s mandate and the distinctive roles and responsibilities of its Board and senior management are clearly stipulated in its Act. SLDB has adopted a framework for managing interest rate and liquidly risk through which an Asset Liability Committee (ALCo) is responsible for management of such risks. 24. One of SLDB biggest challenges is turning a profit with the current cumulative loss of XCD$11 million. As a result of this loss, as of end FY 2012, 33 percent of the initial paid-up capital had been wiped out. Therefore, SLDB’s sustainability depends on the GoSL’s ability and willingness to continue to inject fresh capital and underwrite its external borrowing in the medium term. During FY2011-12 and FY2012-2013, the Government injected approximately US$ 1 million per period to support SLDB. Since SLDB has not yet attained financial self- 29 sustainability, a government guarantee for the repayment of the credit facility is a necessary requirement of the project structure. 25. SLDB has some experience managing credit lines, including from the Caribbean Development Bank (US$ 5 million), the CARICOM Development fund (US$ 3.7 million) and the National Insurance Corporation (US$ 9.2 million). However, given that it is a fairly new organization (started operations in 2009 and has 24 staff members actually) and its limited track record, its participation as a financial intermediary under this Project would be conditioned to the strict compliance and execution of an institutional development plan which has been developed based on the findings of SLDB’s capacity assessment, and which aims to address the institutional capacity gaps identified. Institutional Development Plan: 26. SLDB`s eligibility as a PFI has been confirmed subject to its agreement to implement an institutional development plan within one year of project start, including a set of time-bound monitorable performance indicators and regular review of progress, to address weaknesses in the following areas: (i) risk management and internal audit; (ii) loaning process; and (iii) governance structure. Specific measures include: (i) Adopting a loan pricing mechanism that properly reflects its level of risk and ensures full cost recovery in order to attain financial sustainability in the near term; (ii) Tightening provisioning rules to better reflect the level of risk in each class, including disregarding or at least discounting the value of the collateral in the determination of required provisions; (iii) Minimizing reliance on collateral given the lengthy foreclosure process and a legal framework which tends to be unfavorable to banks in case of default; (iv) Reinforcing the effective use of a mechanism for calling government guarantee when student loans become non-performing; (v) Strengthening the monitoring and loan recovery system in order to minimize the risk of loans migrating to higher risk classes; (vi) Put in place an Internal Audit Department as well as Legal and Loan Recovery Department by April 1, 2016. In the interim, the Ministry of Finance would assist the SLDB as required to fulfill functions required of an Internal Audit Department as well as a Legal and Loan Recovery Department for implementation of the CAFF. 27. The effective implementation of this Plan is a disbursement pre-requisite for the CAFF. Thus, it is envisaged that the TA will be intensive during the first 6-12 months of the Project to kick start sub-lending. On-lending Terms 28. PPCR/SCF Loan to GoSL: Through the CAFF, the GoSL would receive US$5.0 million of concessionary financing from the Bank. The funds would be made available at an interest rate of 0.25 percent and would be intermediated by SLDB for on-lending to the private sector, including households and enterprise to carry out disaster risk mitigation investments. Lending to the final beneficiaries would be denominated in East Caribbean Dollars. The foreign exchange 30 risk on the PPCR/SCF Loan would be borne by the GoSL. 29. On-lending term from GoSL to SLDB: The GoSL would receive fee for the cost of transferring the funds received from the Bank to SLDB which is the final administrative agent. 30. On-lending term from SLDB to final beneficiaries: The interest rate charged to the final beneficiaries would vary during the implementation of the project according to SLDB pricing policy, and would depend on the sector in which the investment would take place in order to account for the different risks profiles of each sector. The cost of lending to the final borrowers would include, at a minimum, the cost of the funds to SLDB, plus an on-lending margin reflecting (a) SLDB administrative costs, and (b) a credit risk margin. Safeguards would be put in place to ensure interest rates are not below the inflation rate. 31. The final interest rates will be defined in line with the above defined criteria and depending on an assessment of market conditions and general financial landscape prior to disbursement under the component. Throughout the life of the CAFF, interest rates will be periodically benchmarked against private market interest rates to ensure loans do not disproportionately distort the financial landscape. 32. SLDB would bear the full risk of the loans to the final borrowers. Loan sizes would be determined on an individual basis, considering market conditions and the final beneficiary’s repayment capacity, and are expected to range from XCD$1,000 to a maximum of XCD$300,000 (USD$373.00 – USD$111,940.000) for any of the target sectors. Loans would be granted with a maturity of up to 10 years. Lending would be guided by the SLDB’s Lending and Risk Policies. Where there is need for amendment to these policies to achieve the overall goal of the program, the relevant Board approvals would be sought. Monitoring: 33. In addition to indicators already included in the project’s result framework, a more detailed list of indicators to be monitored for this component would be included in the OM that would be developed for SLDB to implement the credit line. Such monitoring would feed into future reporting which capture lessons learned throughout the life of the CAFF. The list of indicators would include, among others: (i) Number of final borrowers in total and per sector (disaggregated by vulnerability and gender); (ii) Number of individuals and businesses introducing new and feasible climate change adaptation mechanisms; (iii) Number of individuals and businesses that have not received any type of commercial funding in the past; (iv) Average loan amount, total and per sector; (v) Average maturity, total and per sector; (vi) Collection rate through a report on portfolio aging; (vii) Non-performing portfolio; and (viii) Profitability of SLDB (return on assets, return on equity). 31 34. SLDB would also ensure that: (i) Annual financial reports would be prepared according to the Generally Accepted Accounting Standards without major breaches, unless otherwise required by relevant local authorities; (ii) the reports would be audited within a year after the closure of the accounts and the original audited reports would be sent to the World Bank; (iii) SLDB would comply with current regulations in general and loan classification and provisioning in particular; and (iv) SLDB would be required to provide an on-going proof of compliance with the listed compliance criteria every six months by its management, and annually by auditor’s certification. SLDB's continued participation in the project would be subject to satisfactory implementation of agreed institutional development plan. Sub-Component 3.2 – Technical Assistance to SLBD (US$ 0.5 million) 35. This sub-component would finance technical assistance to SLDB to: (i) address the identified gaps in its current operation and risk management practices, as outlined in the above- listed institutional development plan; (ii) provide technical engineering assistance for quality assurance and review of proposed adaptation loans; and (iii) provide various other support in the implementation and supervision of sub-lending activities, as needed. 36. The Climate Change Coordinator based at MoSDEST would provide technical assistance as requested by the SLDB, to assist in determining the suitability of projects regarding building climate resilience and reducing risk to disasters. Such support could include training and capacity building, as needed. In addition, SLDB would benefit from support from the Project’s Communications/Liaison Specialist with regards to devising an outreach/marketing strategy to promote the CAFF to potential borrowers. 37. The CAFF would be implemented in accordance with the World Bank’s Financial Intermediary Financing (OP/BP 10.00). COMPONENT 4: Contingent Emergency Response (US$1 million IDA) 38. Due to the high risk of a catastrophic event in Saint Lucia, a provisional component would be added under this Project to facilitate rapid response upon occurrence of an adverse natural event, allowing for rapid reallocation of the loan during an emergency, under streamlined procurement and disbursement procedures. The emergency mechanism component would be triggered, following an adverse natural event and a subsequent declaration of a national emergency by the GoSL. Following this declaration, the GoSL could officially request reconstruction/rehabilitation financing under this component through a letter to the World Bank Country Director. In addition, the GoSL would be required to submit a recovery action plan indicating reconstruction/rehabilitation needs. The recovery action plan would outline the requested re-categorized financing or additional financing to cover early recovery and rehabilitation costs. 39. The emergency mechanism component would be implemented following the rapid response procedures governed by OP/BP 10.00, paragraph 11. Once triggered, OP/BP 10.00 facilitates rapid utilization of loan proceeds by minimizing the number of processing steps and modifying fiduciary and safeguard requirements so as to support rapid implementation. 32 Disbursements are expected to be in the form of two types of expenditures, namely critical imports and rehabilitation or reconstruction activities - including civil works and related goods and services. In addition to reallocation of funds from other components in this Project, the contingent component may also serve as a conduit for additional financing from IDA in the event of an emergency. The final arrangements would be part of the written agreement between the recipient and the Bank that is a condition for disbursement of this component. 40. Below is a list of critical imports eligible under the component: • Construction materials • Water, land, and air transport equipment, including spare parts • Agricultural equipment and inputs (excluding pesticides) • School supplies and equipment • Medical supplies and equipment • Petroleum and fuel products • Construction equipment and industrial machinery • Communications equipment • Seeds and fertilizer • Food and water containers and any other items which may be acceptable to the Bank and agreed to by the Government and the Bank 41. If an adverse natural event does not occur during the lifetime of the Project and/or the component is not disbursed 12 months before its closing date, the Component would not be activated, and the amount of US$1 million would be reallocated to finance activities under the other proposed components, based on the priorities of the GoSL and the Bank’s approval. COMPONENT 5: Project Management and Implementation Support (US$3.0 million: US$1.4 million SCF Grant; US$1.6 million CRW) 42. This component would finance the provision of support to the Project Coordination Unit (PCU) under the Ministry of Finance, Economic Affairs, Planning and Social Security’s (MoF) Department of Planning and National Development to strengthen and develop their institutional capacity to conduct overall project management and coordination, implementation monitoring and evaluation, and supervision and to comply with its responsibilities as would be set forth in the project’s OM. The hiring of specialized staff within various IAs would be also financed, as needed, including: (a) Civil Works Coordinator to be based at MIPS&T to provide technical support for implementation; (b) GIS Coordinator within MoPP; (c) Climate Change Coordinator at MoSDEST to provide support to the IAs on PPCR-related activities; and (d) Communications/Liaison Officer for overall communication/marketing support to the Project. Additionally, project audits and project studies, including performance reviews and M&E as well as operating costs incurred by the PCU and IAs would also be covered under this component. Environmental and Social Safeguard consultants would be hired as required to develop and implement the necessary plans, as needed. 43. Finally, this component would also support PPCR project and program-level activities (e.g. M&E, coordination, stakeholder consultation and knowledge management), including 33 capturing/sharing lessons from operationalization of CAFF—an innovative approach to adaptation finance. PROJECT ALIGNMENT WITH REGIONAL IDA 44. Regional IDA resources have been secured as specific activities within project components 1 and 2 of the proposed Project are fully aligned with Regional IDA objectives as detailed in Table 6 below: Table 6: Alignment of Project Activities with Regional IDA Eligibility Criteria Project / Project Eligibility Criteria Explanation of Alignment Activity Involve three or more Saint Lucia DVRP: Saint Lucia DVRP (SLU DVRP) is linked to two other disaster vulnerability reduction countries, all of Second project of a projects implemented in three other Eastern Caribbean countries: Dominica (P129992 / which need to three part series of Preparation) as well as Grenada and Saint Vincent and the Grenadines (SVG) (P117871 participate for the disaster vulnerability / Implementation), establishing the four-country strategy of a Regional Disaster project’s objectives to reduction projects in the Vulnerability Reduction Program (RDVRP), inclusive of their participation in the be achievable Eastern Caribbean Caribbean Pilot Program for Climate Resilience (PPCR). While initially prepared as a multi-country Adaptable Program Loan (APL), the SLU-DVRP represents the second phase of a national and regional engagement meant to achieve the long-term objective of disaster vulnerability reduction across the Organization of Eastern Caribbean States (OECS). Since launching the RDVRP in June 2011, several regional knowledge sharing and capacity building activities have been carried out through the active DVRPs in SVG and Grenada. Regional knowledge exchange activities include both spatial data management and climate resilience engineering, in which relevant public officials from Saint Lucia and the five other OECS countries participate. As a result, two communities of practice were formed, and the SLU DVRP will enable Saint Lucia to continue demonstrating its technical engineering capacity to contribute towards a regional center of excellence. Additionally, Saint Lucia leads in the spatial data management, coordination and use of its national GeoNode known as SLING (Saint Lucia Integrated National GeoNode). As all four DVRP projects enter implementation phase, SLU DVRP will continue to promote regional knowledge exchange and will inform other OECS countries through participation and hosting regional knowledge sharing activities such as regional workshops, capacity building, webinars and just-in-time knowledge exchange to improve engineering practices and harmonize spatial data management. Regional connectivity is critical in ensuring regional disaster resilience, not only for a Benefits, either Component 1 Activity: country receiving emergency aid and assistance, but also for other countries in need. economic or social, Reinforcement of flood Investments in flood defense infrastructure adjacent to UVF will therefore have positive spill over country control infrastructure at spillover effects to other Caribbean island nations as continued operations will ensure boundaries (i.e., that Hewanorra aid, supplies and assistance can be both received or deployed in the immediate generate significant International Airport (5 aftermaths of extreme hydro-meteorological events. In addition, as tourists traveling positive externalities million out of which from the US and Europe to SVG or Dominica are often required to connect through or mitigate negative US$ 3 million in either Grenada or Saint Lucia (given these two countries are the only islands of the four ones) regional IDA and $2 meeting international standards to receive commercial air jets). Thus, safeguarding the million in national UVF runway is critical to regional economic activity, especially in the aftermath of a IDA) natural hazard event. To date, Regional IDA finances have been leveraged through the Grenada-DVRP to finance similar vulnerability reduction investments in Grenada’s international airport. Regional IDA finances will be used towards generating, sharing, analyzing and using disaster risk information and climate data to improve decision-making processes and Component 2 Activity: engineering design standards. Citizens in participating countries will subsequently 34 Open data systems / benefit from increased resilience of critical infrastructures important for economic and platforms (US$3 social development. Importantly, parallel open data initiatives are being carried out in million out of which all three DVRPs, with the intention of sharing hazard and risk data across islands US$2 million is towards general vulnerability reduction across the Eastern Caribbean. Joint workshops, regional IDA and trainings as well as collaborative initiatives will be financed. US$1 million is national IDA) Clear evidence of Saint Lucia DVRP: When initially preparing the project as part of a regional APL, Saint Lucia decided to country or regional Second project of a allocate its entire national IDA allocation toward the project, thereby demonstrating the (e.g., ECOWAS, three part series of country’s commitment to collaborate and participate as part of a regional initiative. SADC) ownership disaster vulnerability which demonstrates reduction projects in the commitment of the Eastern Caribbean majority of participating Saint Lucia DVRP link Saint Lucia is fully committed to reducing its disaster vulnerability as part of a regional countries with the Pilot Program partnership, as demonstrated in its continued membership in the Caribbean Region for Climate Resilience PPCR – a targeted program funded by the CIF for which Saint Lucia was selected as a (PPCR) national pilot. The Saint Lucia pilot aims to share knowledge gained through implementation across the region and the five other pilots countries: Dominica, Grenada, Haiti, Jamaica, and Saint Vincent and the Grenadines. Component 2 Activity: Saint Lucia will take the lead in a regional data management and sharing initiative Open data systems / through the launch of GeoNode – a disaster risk data and information platform to be platforms (US$3 financed under Component 2 and meant to enable sharing with other platforms in million out of which Dominica, Grenada and Saint Vincent and the Grenadines. In addition, the Open Data US$2 million is for Resilience Initiative (Open DRI) will further enable data sharing across islands, regional IDA) finance regional technical assistance activities as well as harmonize data standards across the Eastern Caribbean. Saint Lucia DVRP: Clear evidence of Saint Lucia’s ownership which demonstrates commitment to the Second project of a majority of participating countries is further demonstrated in Saint Lucia’s role during three part series of the initial negotiations of the APL. Saint Lucia has been a strong advocate, speaking on disaster vulnerability behalf of all four participating OECS countries. reduction projects in the Eastern Caribbean Provide a platform Saint Lucia DVRP link The Saint Lucia DVRP is being prepared as part of the Regional PPCR, which pilots a for a high level of with the Pilot Program regional approach to climate resilience while including national level interventions as policy harmonization for Climate Resilience well as regional policy, strategy and knowledge work. between countries; (PPCR) and, that are part of a well-developed and Component 1 Activity: A capacity building element is built into civil works investments to ensure proper broadly supported Capacity Building design, management and maintenance of financed infrastructures. Many such activities regional strategy. Associated with Civil will be carried out through the Ministry of Works’ Chief Technical Officers Works Association, which aims to mainstream safe and uniform building standards across seven OECS countries. All four countries participating in the three phases of the DVRPs will participate in joint and collaborative capacity building trainings and workshops. 35 Annex 3: Implementation Arrangements SAINT LUCIA: Disaster Vulnerability Reduction Project Project Institutional and Implementation Arrangements 1. The MoF will be the primary GoSL counterpart and serve as the overarching institution responsible for project execution. The MoF is experienced in executing Bank-financed projects as well as coordinating various line ministries and technical implementing agencies (IAs) – a critical ability given the DVRP’s cross-sectoral nature and broad range of stakeholders involved in implementation. 2. The existing Project Coordination Unit (PCU) within the MoF will be responsible for day-to-day project management, coordinate project implementation for all components and serve as the intermediary between the Bank and IAs. The PCU will further be responsible for fiduciary and safeguards compliance as well as reporting to the Bank on procurement, financial management, safeguards, audit and disbursement aspects, and on overall project progress with inputs from the IAs. The PCU would also coordinate project implementation for all components and would be primarily responsible for coordinating with the Bank and technical implementing agencies (IAs). Specific tasks of the PCU would include, inter alia: (i) procurement control, including the approval of bidding documents, contracts, and recommendations; (ii) financial management, including payments to contractors and consultants; (iii) appointment and management of consultants to assist with project activities, as needed; (iv) administration of third party audits ensuring quality of project activities; (v) administration of financial audits and requisite reporting to the Bank; (vi) management of environment and social safeguards aspects of the Project; (vii) quarterly reporting on project progress; and (viii) ensuring that the Project is implemented in compliance with agreed implementation procedures and other Bank guidelines (Procurement, Financial, Environment, Social). The PCU would be responsible for reporting to the Bank on procurement, financial management, safeguards, audit and disbursement aspects, and on overall project progress, with inputs from the IAs. Implementing Agencies: 3. The MIPS&T will be the technical agency responsible for implementing, coordinating and managing all civil works activities. A Civil Works Coordinator would be hired to be based at MIPS&T to support with the implementation of the works. 4. MoSDEST will be the agency responsible for ensuring that project activities remain aligned with the SPCR goals. As the country’s focal point on climate change issues, the Ministry would also be responsible for reporting on PPCR activities within the Project and on the overall Program. A Climate Change Coordinator would be hired at MoSDEST to provide overall support in this regard. The GIS Coordinator with the MoPP will provide technical support to IAs as needed. 5. The relevant technical line ministries would be the IAs will be responsible for the preparation of technical specifications, bills of quantities and terms of reference relating to their respective activities. Implementing agencies for the Project include: MIPS&T; MoE; Ministry of Health, Wellness, Human Services and Gender Relations (MoH); Caribbean Public Health 36 Authority; Ministry of Physical Planning, Housing and Urban Renewal (MoPP); Saint Lucia Air and Sea Ports Authority (SLASPA); Ministry of Social Transformation (MoST); Department of Fisheries and Department of Forestry, both within Ministry of Agriculture, Food Production, Fisheries and Rural Development; Water Resources Management Agency (WRMA), Water and Sewerage Company (WASCO), NEMO and MoSDEST (SDED). The specific tasks of the IAs include, inter alia: (i) design and planning of project activities, including preparation of cost estimates and technical inputs to bidding documents; (ii) procurement duties in collaboration with the PCU, including review of bids, assistance with preparation of bid evaluation reports, and final decision; (iii) management and supervision of contracts; (iv) provision of third party quality assurance checks for each contract; and (v) provision of necessary payment-related documentation to the PCU for final contract payments. Each of the IAs would have staff members specifically tasked to implement the Project. 6. SLDB would be the implementing entity for Component 3. A Subsidiary Agreement will be signed between the GoSL and SLDB (through which SLDB will access funds for the CAFF), which will be considered a condition of effectiveness. 7. For the implementation of regional capacity building and knowledge sharing activities related to mainstreaming safe and uniform construction standards and climate resilience engineering, the respective agencies responsible for public works and the Chief Technical Officers Association for the OECS would be responsible. For regional activities related to geo- spatial data management and sharing and harmonization of data standards across the Eastern Caribbean, the Project would engage, relevant regional agencies, such as the University of the West Indies, which would work in partnership with the respective Physical Planning units of the participating OECS countries. Project Coordination Committee: 8. The MoF would convene a Project Coordination Committee (PCC) to foster communication and coordination between implementing agencies and key government stakeholders. The PCC’s would be responsible for ensuring that the Project is in line with national development priorities. The National Development Unit (NDU) within MoF will serve as Secretariat for the PCC, which would be chaired by the Permanent Secretary of NDU, and with membership from the National Development Unit, Economic Planning Unit, Budget Office, Accountant General, PCU and SDED. Representatives from the relevant IAs will participate as needed. The Project’s Civil Works Coordinator, Climate Change Coordinator, GIS Coordinator and Communications/Liaison Specialist are expected to report to the Committee on respective progress achieved under the Project. Terms of Reference (TOR), including the membership and meeting frequency, would be included in the OM, to be adopted prior to Project Effectiveness. PCU Capacity Assessment and Staffing Recommendations: 9. The PCU is currently in charge of implementing Bank-financed projects, including the HTERP, and several trust fund grants. The PCU’s current organizational structure includes three departments managed by the project coordinator: Procurement, Financial (two FM officers and an assistant), and Administration (with one officer and two supporting staff). Procurement is headed by a procurement specialist assisted by two officers. The procurement specialist is in 37 charge of coordinating and supervising the project’s procurement. The PCU’s procurement staff has significant experience, which it gained through on-the-job training in implementation of the above-mentioned projects and through attendance at several regional trainings on Bank procurement Guidelines. Its overall procurement capacity is rated Satisfactory. Given the additional activities and expected additional procurement workload, additional procurement staff will be hired to support the procurement specialist. Specific staff needs would be evaluated again during the first year of implementation. Financial Management, Disbursements and Procurement Financial Management 10. Summary. Saint Lucia has a good public financial management system (PFMS), and the GoSL continues working to further strengthen its PFMS. 28 Currently, the Government is using an Integrated Financial Management Information System (SmartStream), which is working well. The SmartStream is used to prepare Government public accounts and also donor financed Project financial statements. Currently, a separate accounting system (QuickBooks) is used for Bank Projects. The accounts for this Project would be integrated into SmartStream, in a phased manner. The PCU has viewer access to SmartStream, which allows for the reconciliation of the accounts. The PCU is working alongside the Accountant General to achieve full access to SmartStream, which would allow direct posting of project expenditures and generation of project expenditure statements from SmartStream. After one year of project implementation, an assessment would be made to integrate the project accounts into SmartStream. Once project accounts are fully integrated with SmartStream, the system would be able to track the project expenditures and generate quarterly Interim Financial Reports (IFRs) and annual financial statements. Until the full Project accounts are integrated with the SmartStream, the PCU would continue to maintain the accounts in QuickBooks. For incremental use of the country systems, the following steps have been agreed upon with the GoSL: i. PCU would be granted full access to SmartStream by the project effectiveness by the accountant general; ii. The Government chart of accounts and budget classification would be adjusted to include project information and integrated in the SmartStream; iii. Detailed project records would be kept in QuickBooks using a project-specific chart of accounts. Cumulative project expenditures would be transferred to the SmartStream by the PCU project accountant on a monthly basis during the initial years of the project implementation; iv. Provided that Treasury management of the separate designated bank account is successful (as is being piloted under the ongoing Caribbean Regional Communications Infrastructure Program project), project funds would be transferred to the consolidated fund from the designated account as and when needed. However, actual expenditures would be tracked to facilitate the balance lying with the treasury. 28 Through a multi-donor Trust Fund to Support Economic Management in the Caribbean – (SEMCAR, TF012374), the Bank is providing US$200,000 to the GoSL to help in the development of the Regional SmartStream Enterprise Agreement on behalf of the participating countries, including Saint Lucia. This grant would introduce more SmartStream modules by the GoSL, which could facilitate the increased use of SmartStream by the PCU. 38 11. Although the DOA has adequate capacity, the audit of public accounts is overdue since 2006. As such, the Project accounts cannot be integrated with the public accounts unless timeliness both in the preparation and audit of public accounts is significantly improved. It is expected that public accounts would be updated by June, 2014. 12. Budgeting. The PCU will prepare the project budget, which will be integrated into the national budget. The PCU and the MoF will monitor implementation of the budget. The budget year for the GoSL is from April 1 to March 31; the Project accounting year would follow the Government’s accounting fiscal year. Project annual budgeting would be based on the cost tables, and would be updated according to the latest information during project implementation. The annual budgets would be prepared by the PCU in collaboration with the concerned implementing ministries/agencies, and submitted to the MoF for final approval. The approved annual budget would be included in the budget estimates, entered into the accounting system, and used for periodic comparison with actual results as part of the interim reporting. The approved budget would be shared with the World Bank and would be entered in the GFMIS as well as QuickBooks to monitor implementation progress. 13. Accounting. The PCU is using a computerized accounting system (QuickBooks) to maintain existing project accounts, as mentioned above. Project’s accounting information would be manually transferred into the SmartStream on a monthly basis, until QuickBooks can be integrated into SmartStream, as mentioned above. It is expected that by June 30, 2014, the PCU staff would have more access, allowing it to directly enter project expenditures into the SmartStream. Once this arrangement is put in place, the project’s designated account would be linked to or consolidated into the foreign currency funds of the GoSL, and the entire payment process would be transitioned into SmartStream. Project transactions would be recorded as incurred, and all primary supporting documentation would be maintained to facilitate ex post reviews and external annual audits. Such documents should be maintained for a minimum period of five years. The detailed accounting policies and procedures would be set forth in the OM. 14. Financial reporting. The PCU would be responsible for producing and submitting the IFRs to the Bank on a quarterly basis. These reports would provide required monitoring information and would be used for disbursement purposes. The IFRs would include a short narrative outlining the major project achievements for the quarter, the Project’s sources and uses of funds, bank reconciliation statements, and necessary procurement tables. These reports would be submitted to the Bank no later than 45 days after the end of each reporting period. The annual financial statements would include the project’s sources and uses of funds, a detailed analysis of project expenditures, a schedule of withdrawal applications presented during the year, a reconciliation of the designated account, the notes to the financial information, and management representation letter. These reports would be prepared by the PCU and made available to both the internal and external auditors. 15. Internal controls and Internal Audit . The MoF is responsible for the financial control of all government receipts and expenditures. All government expenditures are pre-audited before payments are made. The overall control environment in the GoSL is reasonably good as there are adequate financial rules, regulations and also checks and balances. All expenditures are audited by the internal auditors based in the Office of the Accountant General prior to the 39 issuance of payments and disbursements. The PCU would provide additional control and review the documentation of all expenditures before any payment is made. The Project’s OM would reflect the structure of the PCU, administrative arrangements, internal control procedures, including procedures for authorization of expenditures, maintenance of records, safeguarding of assets (including cash), segregation of duties to avoid conflict of interest, regular reconciliation of bank account statements, bank accounts signing mandate (to include at least two signatories), regular reporting to ensure close monitoring of project activities, and the flow of funds to support project activities. The project-specific information such as the chart of accounts, the formats of the reports, etc., would be added as part of the annexes to the manual. The project OM would be a living document and would be updated from time to time. Assets acquired by the project would be in the custody of the respective participating ministries/implementing agencies, which would also keep copies of the supporting documentation. The PCU would maintain all supporting records of the project. Annual physical inspection would be undertaken by the implementing agencies and PCU staff, with the participation of the internal auditors. 16. Disbursement and flow of funds. The project fund would be channeled through a designated account denominated in US dollars, which has been opened by the PCU at the Bank of Saint Lucia Limited. Advances to the designated account would be made based on the forecast of the project’s eligible expenditures for a period of at least six months, based on interim financial reports. Supporting documentation for expenditures made from the designated account would also be based on the IFRs. As eligible expenditures are incurred, the PCU would withdraw the amount to be financed by the Bank from the designated account (XCD$) in accordance with the financing agreement(s). The PCU would operate a local currency account, to finance project expenditures in local currency, where funds from the US dollar designated account would be periodically transferred. These accounts would be operated in accordance with the procedures and guidelines set forth in the Bank’s Disbursement Guidelines. Reimbursement method of disbursement would also be available. The supporting documentation for this method would also be interim financial reports, and the pre-finance expenditures would be clearly identified in the reports if combined with supporting advances made to the designated account in the same interim financial reports. The minimum application size for reimbursement should be US$200,000. The Project’s disbursement arrangements would be established in a Disbursement Letter, which would include reimbursements, direct payment, special commitment, and advances. 17. Annual Audit of Project financial statement. The project financial statements would be audited annually. The director of audit is responsible for auditing the country’s public accounts, including projects funded by international organizations. The Auditor General’s Office has performed adequately in the past in terms of the quality of the audit reports provided and the timely delivery of annual audited financial statements for Bank-financed projects. Therefore, annual project financial statements would be audited in accordance with auditing standards issued by the International Organization of Supreme Audit Institutions and/or International Standards on Auditing issued by the International Federation of Accountants. The PCU would prepare the auditors’ terms of reference, which would be reviewed by the Bank before the engagement of the auditor. The annual audit reports would include an opinion on the project financial statements, including designated account reconciliation, review of the internal controls, review of the project’s compliance with the terms of the financing agreement(s), and a 40 management letter. The project’s annual audit report would need to be submitted to the Bank for review no later than six months following the end of the fiscal year. In accordance with the Bank’s disclosure of information, the audited financial statement would be made publicly available. In addition to the above mentioned audit of the project accounts, the accounts of SLDB would also be subject to audit and reflect the funds provided by the proposed project. The audited financial statements of SLDB would be provided to the Bank as part of the requirement of the project agreement. 18. Project implementation support by the Bank. As part of project implementation, the Bank would conduct risk-based financial management reviews, at appropriate intervals. These would pay particular attention to: (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) review of the interim financial reports; (iv) review of audit reports, including financial statements and remedial actions recommended in the auditor’s management letters; (v) disbursement management and financial flows, including counterpart funds, as applicable; and (vi) any incidences of corrupt practices involving project resources. The Bank’s review would also cover the on-lending component (Component 3) to be implemented by SLDB. Procurement 19. Procurement 29 of goods, works and services will be carried out in accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and Non-Consulting Services under International Bank for Reconstruction and Development (IBRD) Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Legal Agreements. Unless otherwise agreed with the World Bank, the World Bank’s Standard Bidding Documents (SBD), Requests for Proposals, and Forms of Consultant Contract will be used. 20. The various procurement actions under different expenditure categories are described in general below. For each contract financed under the Project, the various procurement or consultant selection methods, the estimated costs, prior/post review requirements, and time frame have been agreed upon between the GoSL and the Bank in the Procurement Plan dated April 15, 2014. The Procurement Plan would be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. As the corresponding bidding documents and requests for proposal become ready and available, a general procurement notice in UNDB and specific procurement notices would be published for all ICB procurement and consulting contracts as required by guidelines. Procurement Arrangements: 21. Works. Works procured under the Project would consist of civil works to improve infrastructure resilience to disaster events and climatic changes, and to promote climate change 29 As established under HTERP, the Project may use the additional flexibility within Bank procurement guidelines specified in the note entitled Making Procurement Work for the OECS Countries. 41 adaptation measures. Specific works include Slope and Riverbank Stabilization; Road Rehabilitation and Improved Drainage; Retrofitting of Selected Priority Emergency Shelters; Rehabilitation and Retrofitting of Water Supply Systems; and others. Procurement of works would be carried out using International Competitive Bidding (ICB), National Competitive Bidding (NCB), Shopping, and other methods indicated in the financing agreement. The procurement would be carried out using the World Bank’s Standard Bidding Documents and other sample documents and templates, all agreed upon with the Bank. The procurement methods thresholds and prior review thresholds for Works are indicated in Table 6 below. Domestic preferences in accordance with clause 2.55 and appendix 2 of the guidelines would not apply. 22. Procurement of goods and non-consulting Services. Procurement of goods and services other than consulting services would include water metering equipment for non-revenue water; water quality testing equipment; hydrological and metrological equipment; laboratory equipment for MIPS&T; vehicles; IT and other office equipment, and other goods and services. Procurement of goods would be carried out using ICB, NCB, Shopping, and other methods indicated in the financing agreement. The procurement would be carried out using World Bank’s Standard Bidding Documents and other sample documents and templates, all agreed upon with the Bank. The procurement methods thresholds and prior review thresholds for Goods and non-consulting services are indicated in Table 6. Domestic preferences in accordance with clause 2.55 and Appendix 2 of the guidelines would not apply. 23. Selection of consultants. Consultants’ service contracts procured under this Project would include the following, among others: detailed designs; supervision; technical assistance; feasibility and environmental studies; spatial data management and maps; public education and awareness campaign; and strengthening capacity of the PCU, SLDB, and other ministries. The following selection methods would be used: Quality and Cost Based Selection (QCBS); Least Cost Selection (LCS); Selection Based on Consultants’ Qualifications (CQ); Individual Consultants;, and other selection methods indicated in the financing agreement. PCU’s staff selected competitively under some previous Bank’s projects may be hired on a Single Source Selection basis, subject to the Bank’s prior review and approval. The selections would be done using the Bank’s standard request for proposal and other sample documents and templates, all agreed upon with the Bank. Short lists of consultants for services estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 24. Procurement arrangements under Component 3. The procurement of goods, works, and non-consulting services financed under Component 3 would be carried out in accordance with the well-established local private sector procurement methods or commercial practices, acceptable to the Bank (see Procurement Guidelines, Para 3.13). The procurement arrangements and procedures under Component 3 would be elaborated in detail in the CAFF OM. 25. Procurement arrangements under Component 4. In case of urgent need of assistance because of a natural disaster, the simplified procurement procedures outlined in the Bank guidance note Situations of Urgent Need of Assistance or Capacity Constraints, Simplified Procurement Procedures, may be used. The procurement arrangements and procedures under Component 4 would be elaborated in detail in the relevant OM. 42 26. Operating Costs. “Operating costs” refers to incremental expenses incurred on account of Project management, including office equipment and supplies, vehicle operation and maintenance, communication and insurance costs, bank charges under the designated account, office administration costs, utilities, travel and per diem, excluding the salaries of the Recipient’s civil service. 27. Emergency Operating Costs. “Emergency Operating Costs” refers to the incremental expenses incurred by the government for early recovery efforts arising as a result of the impact of an Emergency including, inter alia, additional transportation costs (i.e. gasoline and use of other transportation), increased electricity bills for the public sector, staff overtime, and rental of light and heavy machinery (i.e. generators and equipment for removal of debris). 28. Training costs. The Project would finance trainings (workshops, etc.), as needed. The trainings would be carried out according to training plans, which the PCU would revise semiannually and as needed and submit to the Bank for approval prior to implementation. The expenses would be covered under training category and disbursed based on the statement of expenditure. 29. Procurement methods thresholds and prior review thresholds. The procurement methods thresholds and prior review thresholds that would be used for all forthcoming activities are shown in Table 7. Table 7: Procurement methods thresholds and prior review thresholds Expenditure Contract Value Procurement Contracts Subject to Prior Category (Thresholds) Method Review US $ thousands 1. Works >1,800 ICB All >150-<1,800 NCB First three regardless of value and all >750 150< Shopping First Regardless of Direct Contracting All value 2. Goods >150 ICB All >50<150 NCB First 50< Shopping First Regardless of Direct Contracting All value 3. Consulting Services -3.1 Firms >100 QCBS,QBS,FBS, LCS All <100 QCBS,QBS,FBS, LCS and CQS First Regardless of Single Source All value -3.2 Individuals Regardless of Comparison of 3 CVs in accordance First two and all TORs by TTL value with Chapter V of the Guidelines 43 30. Procurement Plan. The PCU prepared an initial detailed Procurement Plan, which provides information on procurement packages, methods, Bank review, and times for procurement and implementation. This plan was agreed upon between the Borrower and the Bank on April 15, 2014, and would be available at the implementing agency’s project database and on the Bank’s external website http://worldbank.org/procure within 30 days of the signature of the Legal Agreements. The Procurement Plan would be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs. 31. Frequency of Procurement Supervision. In addition to the prior review, procurement supervision and post reviews would be carried out by the Bank team. It is expected that a supervision mission in the field would be conducted every six months. As a minimum, one post review report, which would include physical inspection with the Bank technical expert of sample contracts including those subject to prior review, would be prepared each year. Environmental and Social (including safeguards) 32. The Project has been classified as Category B in accordance with World Bank Environmental Assessments Policy (OP/BP 4.01), as proposed activities under Component 1 involve primarily rehabilitation works with potential environmental or social impacts that are short-term, not significant, and that can be readily prevented or mitigated with standard measures. 33. Environmental Assessment (OP 4.01). The GoSL has prepared a joint Project-level Environmental Assessment (EA) and Environmental Management Framework (EMF), which has been disclosed in-country and on the World Bank’s external website prior to appraisal. The EA- EMF describes two types of Projects: those with relatively complex environmental conditions or those with moderate to significant potential impacts (if unmitigated), requiring a stand-alone Environmental Impact Assessment (EIA), and those comprising relatively simple civil works where the impacts are limited to the construction phase (e.g., building repair and retrofitting). 34. The EA is a program-wide evaluation of the potential impacts anticipated from all the types of subprojects being considered under the program. For more complex Projects or those in sensitive areas, the EMF establishes under which specific circumstances other safeguards policies for Natural Habitats or Physical Cultural Resources may be triggered, such as subprojects in environmentally sensitive or complex areas, or those with potentially significant impacts if improperly managed. 35. An Environmental Management Framework (EMF) has also been prepared to set out the principles, rules, guidelines and procedures for the future assessment of environmental and social impacts for subprojects as they become more clearly defined and ready to implement. The EMF specifically responds to the types of Projects/subprojects under Components 1 and 2 as well as includes standard procedures for mitigating environmental impacts of construction, monitoring and reporting. For relatively simple subprojects and activities, a screening procedure and draft contract clauses for generic standardized environmental mitigation measures were developed to serve as a generic standardized Environmental Management Plan (EMP) suitable for inclusion into the Project’s OM to be applied as needed to works construction contracts. 44 36. This simplified environmental management strategy should suffice in the majority of cases, since most works are relatively simple civil works involving minor impacts during construction that can be mitigated with best management practices and standard operating procedures (e.g. small road, slope, or storm drain works, bridge rehabilitation). The EMF identifies those subprojects or works that may affect environmentally sensitive or complex areas, or which could entail significant negative impacts, and require additional assessment in the form of subproject-specific Environmental Impact Assessments (EIAs) to develop the appropriate and necessary site-specific mitigation and management measures. Finally, the EMF includes a section with clear safeguards guidelines for emergency investments and works including for the preparation of any safeguards studies prior to works as pertinent under OP 10.00 (as may be considered under Component 4). 37. Subprojects requiring stand-alone EIAs would have the assessment studies completed once designs are sufficiently defined to allow a meaningful evaluation performed and specific mitigation measures developed. The EIAs would be conducted prior to the initiation of the works activities and would establish environmental requirements for the design and construction phases of the activity. To address the need for EIAs during implementation, a screening procedure is included in the EMF and in the OM detailing requirements for a stand-alone EIA and providing TORs for an EIA study. For relatively simple subprojects and activities, a screening procedure and draft contract clauses for generic standardized environmental mitigation measures would be included in the EMP and OM to be applied as needed to works construction contracts. Potential impacts from these types of fairly uncomplicated activities would be managed by the inclusion of environmental compliance contacting clauses to mitigate construction-related impacts. 38. Natural Habitats. The Natural Habitats policy (OP/BP 4.04) has been triggered due to the fact that some subprojects (e.g. slope stabilization works and waterline replacement) may involve accessing the higher reaches of watersheds which are protected under Saint Lucian law. In addition, select subprojects may affect sensitive riparian areas with unstable soils (e.g. roadwork at Venus – Anse-la-Raye) and / or zones with natural habitat. 39. Physical Cultural Resources. The Physical Cultural Resources (OP/BP 4.11) policy has been triggered as a precaution. The EMF and EMP include a "chance-find" procedure, particularly during activities such as major excavations, road realignments or similar works where such assets could be affected by clearing, blading, excavation or trenching. 40. Supervision for environmental compliance would be managed by the PCU in close coordination with the relevant Ministries and agencies, particularly SDED, who would provide technical support to the PCU as needed, with support from the World Bank Environmental Specialist. In addition to Bank requirements, the PCU would be responsible for ensuring the proper application of any national environmental laws. The PCU would be responsible for ensuring environmental compliance in accordance with procedures detailed in the Project's OM and would be responsible for including these requirements in associated works contracts. As the PCU serves primarily as a fiduciary institution, it would rely on technical assistance for environmental supervision from the SDED, from line ministries, and from qualified selected consultants for environmental assessments, monitoring and supervision. 45 41. The OM would identify focal points within each of the relevant Ministries/Agencies who would liaise directly with the PCU on these issues. Periodic supervision by Word Bank's Environmental Specialist would be conducted to provide additional support. Component 5 of the Project would also serve to enhance the institutional capacity of the PCU to implement the provisions of the OM. 42. No issues relating to the Project were identified requiring specific attention that is not addressed under the Bank safeguard policy structure. Finally, no exceptions from Bank safeguard policies are being sought under this Project. 43. Social. The Social Assessment conducted during project preparation confirmed that project beneficiaries welcome the project and anticipate positive social impacts. Perceived impacts include a greater sense of safety and security as a result of improved infrastructure and facilities as well as increased community participation as a result of renovated community centres. 44. Involuntary Resettlement. The Involuntary Resettlement Safeguard Policy (OP/BP 4.12) is triggered as works planned, including roads and bridge rehabilitation and drainage system construction, could potentially lead to the public acquisition of land and subsequently impact beneficiary assets or access to assets. As such, an RPF has been developed to cover acquisition that may emerge during project implementation. The RPF has been disclosed in country and on the World Bank’s external website, and was publically consulted in Saint Lucia. Screening was undertaken to determine the presence of Indigenous Peoples in the project area and it was concluded that OP/4.10 is not triggered and Indigenous Peoples are not present. 45. During project implementation supervision of Social Safeguards Compliance would be managed by the PCU in close coordination with the relevant Ministries and Agencies as needed, with support from the World Bank Social Specialist. A Social Development Specialist would be hired, as needed, to oversee the screening and implementation of any land acquisition under the project to assist in the implementation of the Grievance Redress Mechanism. The social specialist would support the monitoring of the gender dimensions of the project including the implementation of Component 3. 46. Gender-Inclusive Climate Adaptation Finance. As part of the demand analysis that would be carried out for the CAFF (component 3), gender-related barriers and bottlenecks to accessing credit would be identified and accounted for in the facility’s design and lending strategy. Appropriate gender indicators would also be identified and closely followed during the Project lifespan. Anticipated project outcomes include increased ability to account for gender concerns in measurements of disaster vulnerability and financial vulnerability as well as increased knowledge on how to promote gender equity through climate adaptation finance. 47. A beneficiary feedback mechanism would be devised at project start to tie into the Project’s M&E framework, which would be implemented throughout the project lifespan. A Grievance Redress Mechanism, as articulated in the RPF, will be implemented to address potential concerns of project beneficiaries. In addition, a system will be devised to facilitate long term beneficiary participation and engagement and enhance accountability. 46 48. With relation to Component 3, the relevant policies and procedures of the SLDB were reviewed and it was agreed that any sub-projects of Category A nature and those potentially involving land acquisition would be excluded under the CAFF. 49. Staffing. To ensure adequate capacity for compliance with Bank safeguards policies during Project implementation, specialized social and environmental consultants may be contracted by the PCU as required, to support the implementation of specific safeguards policies. Monitoring & Evaluation 50. The results framework, presented in Annex 1, has been developed in coordination with GoSL. Indicators have also been reviewed vis-à-vis the PPCR core indicators to ensure alignment and facilitate reporting of results at program level. The Project would finance M&E expertise from the start of implementation, to collect baseline data and targets for the indicators related to component 3 that are still to be determined, as well as validate the qualitative and quantitative baselines and targets proposed for the Project’s monitoring indicators within the results framework 30. A beneficiary feedback mechanism would also be designed to enable citizen accountability and integration of stakeholder concerns throughout the project lifespan. 51. Project monitoring would occur as a periodic function. Thematic areas that would be supervised and monitored include the following: i) Social and Environmental compliance; ii) regular technical quality supervision and independent quality monitoring; iii) periodic physical and financial progress monitoring; and iv) PPCR-specific M&E reporting. 52. Social and Environmental Monitoring: This would comprise the following sets of activities: i) monitoring compliance with environmental regulations, social safeguards, and Environment and Social Assessment provisions; and ii) continuous social impact monitoring at the community levels using the Beneficiary Feedback mechanism, and oversight at project level. 53. Regular Quality Supervision and Independent Quality Monitoring: This would be carried out by the respective IAs and the PCU, and would also include third party quality monitoring of selected project activities by independent consultants, as needed. Detailed progress reporting guidelines would be evolved by the PCU and adopted by all IAs. 54. Periodic Physical and Financial Progress Monitoring: Physical progress monitoring would be carried out by the IAs on a monthly basis and reported to the PCU, which would in turn share the reports on a quarterly basis with the World Bank. Financial progress would be reported by the PCU through the quarterly IFRs. 55. PPCR-specific M&E: As every country participating in the PPCR is particular and would face difficulty adhering to a standardized M&E framework across twenty country and regional programs, the results monitoring process has been self-defined and reflects country-specific realities on the ground. The PPCR Monitoring and Reporting Score Card maintains a degree of 30 The baseline and target values for the indicators related to the sub-loans will be defined following the completion of the CAFF demand analysis, and prior to the effectiveness of the Project. 47 flexibility, which enables Saint Lucia to define its baselines against two core indicators to monitor Saint Lucia’s own progress in meeting its climate resilient goals. 56. The NDU, which is the entity responsible for M&E for all public programs at the national level, will be responsible for overall M&E of the Project, consolidating all progress reports generated by the IAs. The PCU will report to the World Bank on a quarterly basis on progress achieved, and annually on project performance indicators, based on the NDU’s monitoring reports. For PPCR-specific activities, the Climate Change Coordinator within MoSDEST would be tasked with monitoring and reporting according to the CIF M&E guidelines. 57. For Component 3, SLDB would evaluate progress on the proposed indicators through regular reports. SLDB would prepare semiannual reports including intermediate and additional indicators, and semiannual financial management reports. The data would come from SLDB’s internal reports. SLDB would work with the Bank team in the design of the appropriate reporting templates in the CAFF OM for this Component. The financial performance of SLDB would be monitored through independent auditors’ reports and separate management letters confirming adherence to prudential norms. 58. The Project’s OM – as well as the CAFF OM, would provide specific details regarding monitoring and evaluation responsibilities, including data collection requirements, timing, and use of the information. 48 Annex 4: Operational Risk Assessment Framework (ORAF) SAINT LUCIA: Disaster Vulnerability Reduction Project Project Stakeholder Risks Stakeholder Risk Rating Low Risk Description : Risk Management : Changes in government after elections (which would occur The relationship between the Bank and the GoSL is strong, and the project is directly in line during the life of the Project) may weaken support for the with the GoSL’s priority to reduce its vulnerability to natural hazards, and increase its capacity Project and affect implementation. to adapt to the adverse effects of climate change which remained through the last change in government. Additionally, extensive capacity building and yearly public education awareness efforts (both locally and nationally), beginning in advance of, and throughout implementation, would build off this strong interest and aim to cultivate a deep understanding of DRM and climate change adaptation as well as promote ownership of investments. Resp: Stage: Due Date : Not Client, Status: Not yet due Implementation yet due PCU Given the high profile of the Project, and its ambitious aim of The proposed project emphasizes the need for synergies among ministries and agencies, and at comprehensively including multiple sectors in the project’s the local level to maximize the impact of proposed investments. The preparation of PPCR design, certain groups (government agencies, local Phase 1 included extensive consultations with all relevant stakeholders who expressed strong communities, citizens of Saint Lucia) may potentially be interest in reducing their vulnerability to natural disasters, and in the retrofitting and dissatisfied with Project activities and/or feel negatively redevelopment of infrastructure to ensure adaptability to the risks associated with climate affected by, or excluded from the project’s financing scope. change. Elements to be financed under the project have been selected in consultation with key stakeholders (ministries, agencies and local communities in some instances), so as to ensure local ownership and support of selected works. Furthermore, prior technical reviews of proposed activities would be undertaken to ensure that project activities would not have an adverse impact on local residents. During preparation and implementation, the project implementation agency would disseminate relevant information (in additional to social and environmental assessments) to citizens to further increase awareness of the project and activities. Resp: Stage: preparation Due Date : Status: Public awareness campaign SDED, and implementation During project about project activities is planned PCU execution for project execution phase Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating: Substantial Risk Description: Risk Management: The proposed operation would be the largest Bank-financed The proposed Project would finance additional project management capacity (Component 5). operations for the GoSL to date, and is multi-sectoral and Under the HTERP, an organizational behavior specialist was hired to conduct an assessment of complex by nature, involving a wide variety of ministries and the staffing capacity at the PCU, and the findings of this report will be used to determine the agencies. The project would require the PCU to maintain need for the hiring of additional staff. A Civil Works Coordinator will be hired to be based at and possibly increase project management capacity. Current MIPS&T to increase current technical capacity. The proposed project would also provide for capacity could be inadequate (procurement, FM capacity, and trainings to improve the PCUs fiduciary capacity, and to improve its capacity for the number of staff) to handle the large number of contracts, supervision of Bank safeguards. Finally, the proposed project would finance independent there may be insufficient technical capacity to adequately technical audits every two years to ensure technical compliance and quality control. If review and approve designs, as well as inadequate necessary, additional training would be provided based on the findings of these technical coordination, quality control and information sharing audits. mechanisms across various agencies and levels. Resp: Due Date: Stage: Client & During project Status: In progress Implementation Bank execution Weakness at the ministry level could result in poor quality The proposed project would provide for independent inspections/technical audits through control and works inspections. contracts and training for ministries in inspection and quality control practices. It would also establish critical path inspection procedures and integrate these into construction contracts. Additionally, the project would provide TA to the MIPS&T to increase their capacity to manage technical aspects of project activities, particularly vis-a-vis DRM and climate change adaptation. Due Date: Resp: Stage: During project Status: Planned Client Implementation execution Weak capacity of SLDB may delay the on-lending activities. An Institutional Development Plan for SLDB was developed under the PPA, based on The risk in terms of capacity of SLDB to implement the comprehensive institutional assessment of the Bank, including strengthening the operational project is rated as “substantial.” SLDB is a relatively new and risk management practices. The Plan is an integral component of the project (Component institution (created in 2009) that is still on its path towards 3). obtaining financial self-sufficiency. Resp: Client, Due Date: Stage: PCU, During project Status: Planned Implementation SLDB, execution Bank Governance Rating: Low Risk Description: Risk Management: The GoSL, specifically the PCU and co-executing agency, Given the broad consensus around the importance of DRM and extensive consultation SDED, have demonstrated strong ownership and processes during project preparation, no major sectoral or project changes should be expected. commitment to the Project’s objective and activities. The OM would include objective annual performance evaluation procedures for all PCU staff. However, there may be risks associated with delayed The process of decision-making would be assisted through continuous discussion and decision-making due to bureaucratic processes in place, engagement with the PCU and SDED, and the Project Coordination Committee on proposed changes in government (elections expected in November activities and overall project reforms. Furthermore, the Bank team would ensure adequate 2016) or due to potential lack of agreement on proposed supervision and DRM policy and strategy dialogue during the electoral cycle. measures. This could disrupt project implementation. The team would also closely monitor the project to ensure that all fiduciary procedures are implemented according to Bank policies. Project evaluation and supervision would include informal technical audits and formal independent technical audits every two years, especially for the Mid-Term review and final evaluation. Finally, project investment decisions have been based on a participatory process during the preparation of the SPCR that involved the civil 50 service, local authorities and communities, which included the prioritization of risk reduction and pilot adaptation measures. Resp: PCU, Stage: Due Date: Not Status: Not yet due SDED, Implementation yet due Bank Project Risks Design Rating: Substantial Risk Description: Risk Management: The Project is relatively large, multi-sectoral and complex, The Project is designed with components clearly defined by the beneficiary ministry/agency, involving a wide variety of ministries and agencies. These in order to clarify responsibilities and generally reduce complexity. The project would work ministries and agencies may not be accustomed to working carefully with the PCU to develop appropriate implementation and oversight arrangements to cohesively under one implementing agency. This may create minimize duplication and promote coherence and dialogue among relevant stakeholders. confusion and slow project implementation. Additionally, the Project was designed incorporating lessons learned from previous projects and has reduced the number of procurement packages by grouping sub-projects. Due Date: Resp: Stage: During project Status: In progress PCU, Bank Implementation execution Component 3 – CAFF: This Component is an innovative The Project will include an Institutional Development Plan for the SLDB and technical activity, to be implemented by a relatively new entity assistance to strengthen SLDB’s capacity support implementation of Component 3. Due Date: Stage: Resp: PCU During project Status: Not yet due Implementation execution Physical environmental data may be insufficient for design of The Project would build national capacity for strengthening the understanding of climate climate-resistant infrastructure projects. change adaptation needs through multidisciplinary physical environmental data collection and management throughout the lifetime of the project. The proposed civil works under the project would retrofit existing infrastructure vulnerable to current climate risks. Due Date: Stage: Resp: PCU During project Status: Not yet due Implementation execution Scope of rehabilitation works could grow with the discovery The Project team would provide for detailed inspections at the pre-engineering stage to of hidden damages during construction. minimize the impacts of unanticipated damages. Risk management contingencies would also be included in works planning and execution contracts. Due Date: Resp: Stage: During project Status: not yet due PCU, Bank Implementation execution Continuation of data monopolies (unwillingness to share The proposed Project would seek to build capacity at both the national and regional levels, data) within Saint Lucia, and the OECS more generally, including institutional strengthening for multiple ministries across a shared data platform to could inhibit the ability to understand national and regional ensure maximum distribution of analytical capacity. risk. Due Date: Resp: Stage: During project Status: Planned PCU, Bank Implementation execution 51 Social & Environmental Rating: Moderate Risk Description: Risk Management: Purchase of private lands for project works would require the A resettlement policy framework has been developed. Additionally, the team would ensure application of resettlement policy as it relates to land adequate Bank implementation support and training in safeguard applications. Works acquisition. requiring the triggering of safeguards would be subject to prior review. Due Date: Resp: Stage: During project Status: ToRs ready PCU Implementation execution Specific civil works may require separate Environmental The proposed Project would provide for adequate Bank supervision and training in Safeguard Impact Assessments (EIAs). application. All works requiring the triggering of safeguards would be subject to prior review. The proposed Project would also comply with national environmental policies in addition to Bank safeguards. An EMF and an EA have been prepared and include a preliminary program- wide impacts assessment, screening measures for more complex works, and a generic mitigation measures for simple works. Triggers for requiring additional assessments (EIAs) have been included in the scoping and screening mechanisms, and the Bank specialist would provide a no-objection for EIAs and associated ToRs. Resp: Due Date: Stage: PCU & During project Status: ToRs ready Implementation Bank execution Program & Donor Rating: Low Risk Description: Risk Management: The engagement and commitment of donors is not There is considerable donor engagement in Saint Lucia, including the World Bank, the considered a risk, but there are some issues related to the Caribbean Development Bank, USAID and CIDA. The on-going and proposed donor projects different procedural requirements imposed by each donor on are well-aligned and are complementary in terms of project objectives and overall goals. the country and in some cases to the diverging During project preparation and implementation, the proposed project would continue to ensure retrofitting/rehabilitation standards requested by the various synergies with existing projects and activities and the project team would continue working donors for buildings and bridges during project with donors to harmonize technical standards and requirements, where possible, and implementation. safeguards and fiduciary procedures. Due Date: Resp: Stage: During project Status: PCU, Bank Implementation execution Delivery Monitoring & Sustainability Rating: Moderate Risk Description: Risk Management: Quality of works completed may be insufficient to resist A Civil Works Coordinator/engineer would be engaged by the PCU and based at MIPS&T future hurricanes, and risks associated with climate change who would be responsible for approving technical aspects of bidding documents, and ensuring due to poor construction or building materials. the appropriate construction best practices are being utilized. Once construction begins, the engineer would conduct site visits in tandem with engineers from beneficiary ministries to supervise the quality of work. This engineer would also be responsible for certifying delivery of final works. Resp: PCU Due Date: Stage: & During project Status: Not yet due Implementation MIPS&T execution 52 In general, DRM projects have suffered from weak M&E due Project design is paying special attention to the results framework and M&E, particularly to to lack of baseline risk information and to some extent, ensure alignment with the PPCR Monitoring and Results framework and core indicators. A reflecting the difficulty in measuring impacts based on baseline to assess social and economic impacts would be prepared during the first year of the probabilistic assumptions project. Resp: Due Date: PCU, Stage: During project Status: Not yet due SDED & Implementation execution Bank Overall Risk Overall Implementation Risk Rating: Substantial Risk Description: The rating of Substantial for implementation reflects the large size and complex multi-sectoral approach of the proposed Project, and due to the novelty and complexity associated with the credit line component, and limited capacity of, SLDB to administer the credit line component. 53 Annex 5: Implementation Support Plan SAINT LUCIA: Disaster Vulnerability Reduction Project Strategy and Approach for Implementation Support 1. The strategy for the Implementation Support Plan (ISP) draws on the risk profile of the Project (ORAF, Annex 4) and aims to enhance the client’s delivery quality of the proposed interventions. As such, the IS focuses on risk mitigation measures defined in the ORAF and standard Bank implementation support, including technical, institutional, safeguards (environment, social) and fiduciary aspects. 2. The Task Team Leader (TTL) of the Project would be based at World Bank headquarters, along with technical specialists supporting the TTL. Initially (at least until mid-term review), the task team would undertake 4 supervision missions per year. The frequency of missions thereafter would be determined based on the implementation progress of the Project. Regular supervision by the TTL and team members from headquarters, to follow up on Project component progress and provide tailored support to the Counterparts to effectively implement the Project, would focus on the following areas: (a) Strategic – Implementation support missions would meet with the PCU and the partner institutions to: (i) review Project activities, (ii) re-confirm strategic alignment of Project activities to the PDO; and (iii) ensure the necessary coordination amongst respective stakeholders. (b) Technical – The implementation support team for the Project would consist of World Bank technical specialists who would review and supervise the execution of the Project components with partner institutions, ensure the activities are aligned with the PDO, and make adjustments to the design and procurement plan when necessary. Ongoing support for M&E would continue to strengthen the PCU and the Bank’s ability to both monitor Project progress and assess the impact of interventions. (c) Safeguards –Bank environmental and social specialists would support the PCU and executing agencies, as needed, in the preparation and consultation process associated with the safeguard instruments needed for the Project, in accordance with the relevant Frameworks prepared for the Project: Environmental Management Framework (EMF) and Resettlement Policy Framework (RPF), Environmental Management Plans (EMP)and Resettlement Action Plans (RAP), when needed. This support would continue throughout Project implementation, in particular to ensure the application and effectiveness of those instruments. These specialists would: (i) develop the PCU’s knowledge and understanding of Bank safeguard instruments and further familiarize PCU staff with their application; (ii) ensure the PCU has the capacity to undertake environmental and social analyses and develop mitigation approaches; and (iii) ensure regular and close supervision of progress and implementation of the plans. (d) Procurement and Fiduciary – The Bank’s financial management and procurement specialists would provide timely, targeted training to the PCU and possibly other executing institutions prior to Project effectiveness and through periodic supervision missions during project implementation. These specialists would: (i) develop the PCU’s 54 knowledge and understanding of Bank rules and procedures and further familiarize PCU staff with their application; (ii) provide training to the PCU staff on Bank Procurement Guidelines; (iii) ensure the PCU has the capacity to manage the flow of funds and accounting procedures, in line with Financial Management (FM) guidelines; and (iv) support the PCU in building its overall FM and procurement capacity to improve and facilitate project management (in the context of this Project, and in general). The supervision strategy for this Project is based on its FM risk rating, which would be evaluated on regular basis by the FMS in line with the Financial Management Sector Board’s FM Manual and in consultation with relevant task team leader. Procurement supervision would also be carried out semi-annually, preferably jointly with (two of) the regularly-scheduled Bank supervision missions. The support would focus primarily on contract management and on improving proficiency and efficiency in implementation according to Bank Guidelines. (e) Financial Sector Support for the CAFF: The FS specialist would provide support with: i) the implementation of the institutional development plan; ii) monitoring the proper implementation of the LoC component, and iii) coordinating technical assistance and training to SLDB to administer the sub-loans. Supervision of the CAFF component would be carried out semi-annually, preferably jointly with (two of) the regularly scheduled Bank supervision missions. (f) Client-relations – The TTL and task team would: (i) coordinate Bank supervision to ensure consistent Project implementation, as specified in the legal documents (i.e. Financing Agreement, OM); and (ii) speak regularly with the client and the PCU to gauge Project progress in achieving the PDO and address implementation roadblocks as they may arise. Implementation Support Plan 3. Project Oversight and Technical Back-stopping: Day-to-day follow-up and support for the proposed Project would be provided by the Bank’s TTL assisted by operational support staff based in Washington. Technical specialists in transport and coastal engineering, risk assessment, GIS and water sector would also support the project in implementing specific activities. A financial sector specialist would provide support related to the implementation of the credit line component (Component 5). The project would be monitored on a routine basis by procurement, financial management and safeguards specialists. 4. Fiduciary inputs: Training would be provided by the Bank’s procurement and FM specialists before commencement of project activities, and as needed throughout project implementation. Additional training would also occur through regional (hub) level events. 5. Safeguards: While the Project’s social and environmental impacts are projected to be relatively small, to the extent inputs from environmental and social specialists are required, these would be provided by the specialists based in Washington, DC. 55 Table 8: Skills Mix Required Skills needed # Staff Weeks per FY # Trips per year Comments Task Team Leader 12 3 HQ-based Operations Analyst 4 3 HQ-based Civil/Transport Engineer 5 3 HQ-based Coastal Engineer 2 1 HQ-based Water Sector Specialist 2 1 HQ-based Procurement Specialist 5 2 HQ-based Financial Management Specialist 3 2 HQ-based Environmental Specialist 3 2 HQ-based Social Specialist 3 2 HQ-based Risk Assessment Specialist 4 2 HQ-based GIS/Data Management Specialist 4 3 HQ-based Financial Sector Specialist 5 2 HQ-based Gender & Micro-Finance Specialist 1 2 HQ-based TOTAL 55 28 Table 9: Skills Focus and Timing Time Focus Skills Needed Resource Estimate Partner Role First 12 • Contracting of Tech. • Procurement 4 sw NA months Assistance for all components • Financial Management 4sw • Procurement of LiDAR • Technical 6 sw • Development of tender docs Guidance/support • Training in FM, Safeguards • Technical support/ 6 sw and Procurement engineer • Team leadership • TTL 6 sw implementation supervision coordination 12-60 • Technical design & • Technical 18 sw NA months implementation Guidance/support • Procurement/ contracting • Procurement 4 sw • Financial management • Financial management 6 sw • M&E • M&E Specialist 2 sw Table 10: Partners Name Institution/Country Role Client MoF Project counterpart, overall responsible for Project implementation, in compliance with agreements spelled out in Financing Agreement coordinating the GoSL support for the Project Project Coordination PCU Responsible for Project execution Key Government SDED Strategic and technical role, responsible for coordinating line Ministries Project Partner regarding climate adaptation activities responsible for communicating and institution disseminating information on climate change in St. Lucia. Project Partner MIPS&T; MPCE; Each Ministry and agency would provide technical support to the PCU, institutions/agencies WRMA; WASCO; and would be responsible for the implementation of specific technical (Governmental) MoE; MoH; activities, elaboration of terms of reference, guidelines, and supporting MoSDEST; NEMO; documentation relative to their sectors. The PCU would retain fiduciary SLASPA; Dept of responsibilities for all project activities. Forestry; Dept of Fisheries, Saint Lucia Fire Department; Local Institutions SLDB The SLDB would be responsible the on-lending and management of the Climate Adaptation Loan Facility. 56 Annex 6: OP/BP 10 Financial Intermediary Financing SAINT LUCIA: Disaster Vulnerability Reduction Project Macro-economic Environment 1. Despite being a relatively small and undiversified economy, Saint Lucia is now the largest economy in the Eastern Caribbean Currency Union. Private consumption accounts for 67 percent of GDP and is the main driver of economic growth, while exports make up 44 percent of GDP. The economy is based on services, which constitute 69 percent of total economic activity and are Saint Lucia's main source of jobs, as well as of foreign exchange earnings. Within this sector, tourism plays a dominant role in terms of income generation, as it employs 10.9 percent of the total workforce. 31 Industrial production makes up 14 percent of the total economy and manufacturing 5 percent. The share of the agricultural sector is only 3 percent and has experienced a very volatile and overall decreasing trend due to strong competition and the adverse effects of natural disasters. Nevertheless, it is of critical importance, as it employs 14.9 percent of the workforce and is the second-biggest employing sector after retail; the agriculture sector is also critical for the country’s food security. 2. Saint Lucia is vulnerable to a variety of external shocks, including volatile tourism receipts, natural disasters, and dependence on foreign oil. In 2012, public debt reached 78 percent of GDP because of a debt-financed growth approach during the previous years. The high debt servicing obligations limit the administration's ability to respond to these adverse external shocks. 3. The island experienced an average growth rate of 1.7 percent over the five years from 2007 to 2011. The sectors that saw output most affected by Hurricane Tomas were the agricultural sector and the industrial sector, which shrank by 18 percent and 5.2 percent, respectively. Weak demand from tourism source countries as a result of the financial crisis and a major outbreak of a banana leaf disease also held back growth during this period, leading to a decline in activity. The already high unemployment rate increased sharply during the cyclical downturn. 4. Activity is expected to regain some momentum with a recovery in agriculture, a resurgence in tourism, and a recent fiscal stimulus that may provide some support for economic activity. Agriculture is expected to recover from the three-year downturn resulting from a series of adverse transitory events, including Hurricane Tomas and the outbreak of banana leaf disease. Tourism is expected to recover strength as the world continues to leave the global financial crisis behind and households have more disposable income for vacation and tourism. Finally, the construction stimulus package created in August 2012 would have significant impact in the sector and the economy as a whole. Inflation would remain elevated until the fourth quarter of 2013 following the VAT-related steep increase in prices, but should return to around 3 percent subsequently. A faster near-term recovery would be held back by tight monetary conditions, a weakened financial system, and continued external headwinds. 31 ILO database, 2004 figures (latest reported by the ILO). 57 Financial Sector 5. Despite government efforts to revive the economy, low growth and high unemployment remain and are now weighing on financial institutions’ credit quality and balance sheets. The financial system has weathered the downturn, but weak economic activity is taking a toll. The pre-crisis credit boom, which was among the largest in the Eastern Caribbean Currency Union, left financial institutions with notable asset quality problems: nonperforming loans have almost doubled in the past two years, their resolution hampered in part by the inability of banks to foreclose on available collateral due to cumbersome procedures. Reported capital adequacy remains high, but this trend, along with stepped up provisioning, has subdued profitability. 6. There are currently six commercial banks in Saint Lucia, three locally incorporated and three registered as branches of multinational financial institutions. The local banks are 1st National Bank Saint Lucia, Bank of Saint Lucia, and RBTT Bank Caribbean; the foreign-owned banks are Bank of Nova Scotia, CIBC FirstCaribbean International Bank, and Royal Bank of Canada. In addition, there are 55 nonbanking financial institutions, the most of any Eastern Caribbean Currency Union country, which include insurance companies, development banks, credit unions, and offshore banks. 7. Lending to private sector companies comprises 55 percent of commercial banks’ total loan portfolio, while lending to local individuals comprises 35 percent. Property acquisition is the economic activity that receives the most funding from commercial banks, making up 20.2 percent of the total loan portfolio. This entails house and land purchase as well as construction and renovation. Professional services and tourism follow this category, with a commercial credit allocation of 18.2 percent and 17.5 percent, respectively. Agriculture is one of the activities that receives the least funding from commercial banks, accounting for only 0.8 percent of the total loan portfolio. Interest Rates 8. The Eastern Caribbean Central Bank’s prime rate has remained very much the same for the past nine years (decreased from 9.5 percent to 9.0 percent in August 2011), and commercial lending rates have declined only marginally, driven in part by the 3 percent interest floor on saving deposits (the only remaining interest rate control imposed by the Eastern Caribbean Central Bank as a monetary instrument). High real lending rates, as inflation is around 0.95 percent, together with weak demand and tightening lending standards have kept private credit flat. Directed Credit 9. The Project would target three broad sectors that suffer from credit constraints, namely agriculture, housing/infrastructure, and industry/tourism/services. The objective is to provide financing for investments directed towards building resilience to climate change. 58 Subsidies 10. The project entails implicit subsidies in that the interest rate on the funding provided to the final borrowers would not be strictly determined by the market, as there is no market for this type of lending. There is currently no financing available in the market for this type of investment, so the favorable conditions of the PPCR/SCF loan would be passed from the GoSL to SLDB and partially onwards to final recipients at a reasonable margin to account for SLDB’s administrative cost and risk management. The flow of funds is illustrated in Figure 1. Figure 1: CAFF Flow of Funds 11. The loan facility is guaranteed by the GoSL and would be intermediated by SLDB, which would be the borrower and implementing agency for the credit line of the Project. SLDB would on-lend the World Bank funds to the final beneficiaries, including individuals and businesses, who would use the loans for climate change adaptation purposes in selected sectors, such as agriculture, housing/infrastructure, and industry/tourism/services sectors. 12. Loan amounts could range from XCD$1,000 to XCD$300,000 (US$373 to US$111,940) and would be granted for a maximum term of 10 years. The cost of lending to the final borrowers would include, at a minimum, the cost of the funds to SLDB, plus an on-lending margin reflecting: (a) SLDB administrative costs; and (b) a credit risk margin. Safeguards would be put in place to ensure interest rates are not below the inflation rate. The details will be finalised following the results of the feasibility study and will be included within the OM. 13. The final interest rates will be defined in line with the above defined criteria and depending on an assessment of market conditions and general financial landscape prior to disbursement for this the component. Throughout the life of the CAFF, interest rates will be 59 periodically benchmarked against private market interest rates to ensure loans do not disproportionately distort the financial landscape. 14. Prior to qualifying to being evaluated for a loan, the proposed sub-project will have to be evaluated for technical merits, to ensure the proposed activity in fact falls within climate adaptation. SLDB’s loan officers would subsequently review subproject documentation and as appropriate release CAFF resources to the final borrowers. SLDB would also conduct periodic site visits to the projects financed from the LoC to ensure that these are duly implemented and are compliant. SLDB would ensure that its staff is adequately trained to effectively supervise the use of LoC funds. TA envisaged under the project will be used to provide the training to relevant SLDB staff. Additionally, the Climate Change Coordinator based at SDED would also play an active role in terms of assisting in determining the suitability of projects regarding building climate resilience and reducing risk to disasters. 15. The first group of loans granted by SLDB under the LoC facility would be subject to prior review by the Bank in order to ensure sufficient capacity to conduct the appraisal and loaning process in SLDB. The number would be specified in the CAFF Operational Manual, but it is estimated that the number of loans would range between 5 to 20 loans. Assessment of SLDB 16. Corporate Governance. SLDB was established with a defined mandate and clear definition of roles and responsibilities for the board and management. The Board is appointed by the government except for two members who represent the private sector and the National Insurance Corporation. In accordance with the SLDB’s establishing act, the CEO and CFO are appointed by the minister of finance on the recommendation of the Board. Appointment and determination of the terms of service, including remuneration, of the senior staff in the bank are the responsibility of the board. SLDB gives the board reasonable autonomy, with terms and conditions of appointment and dismissal clearly stipulated by law. 17. Board committees have been formed to provide oversight in the bank’s major operational areas, namely: (i) audit; (ii) credit; (iii) investment; budget, and finance; and (iv) human resource and compensation. Since SLDB was launched, the Board has, pursuant to its mandate, adopted and operationalized critical policy documents, namely an operational manual; a new strategic plan for 2011–2016; accounting, finance, and procurement policies; a lending policy; a credit and risk management policy; and the code of conduct for directors, management, and staff of the bank. 18. SLDB has a total of 24 staff members, most them with long experience working in commercial banks in the region or former staff of the previous SLDB. SLDB is organized in four departments; Finance, Service Delivery (client relationship and project initiation), Technology Research and Information Management, and Risk Management. The Board has approved the establishment of an independent Audit and Compliance Unit and the Unit is expected to be active by April 1, 2016. Given the size of the bank, loan recovery is part of the Risk Management Department. The role of this department needs to be better streamlined to avoid an inherent conflict of interest arising from its involvement in the credit approval 60 mechanism. In an attempt to attract and retain talent, the SLDB has adopted a remuneration structure that is a hybrid between private sector and public sector pay scale. A consultant has been hired to support the process of implementing and fine-tuning an appropriate staff performance management system. The SLDB’s organizational arrangement is shown in Figure 2. Figure 2: SLDB Organizational chart 19. External Audit. The SLDB Act requires the bank to undergo annual audits and stipulates the terms of appointment and qualification of auditors as well as the timing, reporting requirements, and the publication of the audit reports. For the four years it has been in operation, SLDB has been audited by KPMG Eastern Caribbean. The audits were conducted in accordance with International Standards of Auditing, and audit reports are published on the bank’s website. According to the audit reports, the bank’s financial statements are prepared in compliance with International Financial Reporting Standards. 20. Internal Audit. The SLDB has not yet set up an internal Audit Department. The Risk Management Department has assumed some of the standard functions of Audit and Compliance.” This arrangement remains suboptimal, given that the Risk Management Department itself should be subject to internal audit and given the constraints the arrangement places on staff. 21. Supervision. SLDB is currently not a regulated entity. However, in 2011, GoSL adopted the Financial Services Regulatory Act, which establishes the Financial Services Regulatory Authority as the statutory body that would be responsible for regulating SLDB, insurance companies, credit unions, international mutual funds, and money services business. 22. Risk Management. Since its inception, SLDB has adopted a framework for managing credit and operational risk, and is currently in the process of elaborating a new and more comprehensive one that would also encompass interest rate and liquidly risk. While the SLDB 61 Board is responsible for the overall risk of the bank, responsibility for the operational risk management function is shared between the Risk Department and Technology Research and Information Management Department. The Risk Department is currently thinly staffed with three people, but has plans to increase in tandem with portfolio growth. 23. SLDB has adopted a comprehensive business continuity plan as part of its overall risk management framework; the plan provides procedural guidance on how the bank can respond in case of emergency or disaster. Staff have been trained in disaster preparedness, disaster management teams have been formed, and their explicit responsibilities are well articulated in the manual. The Business Continuity Plan is expected to be reviewed and updated annually. On a day-to-day basis, business continuity with regard to information management is assured in multiple ways: saving all data on local hard drives, archiving on two redundant servers in the bank that automatically mirror all the data on the active servers, and using back-up tapes that are physically transported to a safe location outside the bank. 24. Credit risk. Credit risk is one of the major risks facing SLDB. The sectors to which the SLDB should lend are clearly stipulated in the SLDB Act, and the Board is authorized to set industry and sector portfolio limits. The Board has put in place credit approval limits per client, per industry for each of the decision making level; Service Delivery $ Risk Department jointly, MD, Credit Committee and full Board. 32 The single borrower limit has been set to 20 percent of authorized share capital and reserves or 10 percent of the loan portfolio, whichever is greater. 25. Lending limits have been set up for each sector, and the SLDB is working on complying with them. The credit policy makes reference to a possible waiver by the Board without being specific on the conditions of the waiver, which creates ambiguity and increases the risk of perpetual noncompliance, especially in the absence of enforcement by a regulatory authority. 26. SLDB key financial figures over the last three year are shown in Table 11 and Table 12. Table 11: SLDB Balance Sheet - Key Figures 2012 2011 2010 Total Assets 38,110 23,466 15,903 Loans and advances 23,764 14,499 6,225 Share capital 23,500 20,000 19,000 Shareholders' equity 15,326 15,113 15,351 Table 12: SLDB Financial Soundness Indicators 2012 2011 2010 Income to capital employed 0.096:1 0.07:1 0.033:1 Loan interest income to total income 0.71:1 0.54:1 0.55:1 Personnel expenses to income 0.8:1 1:1 3.67:1 Personnel expenses to loans and advances 0.08:1 0.11:1 0.30:1 ROE -14.5% -15.2% -23.8% RCE -6.2% -10.3% -23.6% ROA -5.9% -9.8% -22.9% 32 For example, the approval limit for the MD is XCD$400,000 for a housing loan and XCD$30,000 for an agriculture/fishing loan, while the joint RM $SD manager limit is up to XCD$250,000 for housing and XCD$20,000 for agriculture/fishing. 62 27. The liquidity analysis as of March 31, 2012, is presented in Table 13: Table 13: SLDB Liquidity Analysis (as of March 31, 2009) Due in < Due in 1– Due in Total 1 Year 5 Years 5+ Years Assets Cash and cash equivalent 7,998 - - 7,998 Loans 2,293 4,014 17,457 23,766 Other liquid assets 187 - - 187 Liabilities Payables and accruals 1,630 - - 1,630 Long-term loans 317 5,739 14,533 20,589 Special guarantee 500 - - 500 Net Liquidity Gap 8,030 (1,725) 2,924 9,229 28. Figure 3 shows the loan portfolio concentration by sector as at May 31, 2012. Figure 3: SLDB Loan Portfolio Concentration by Sector (as of May 31, 2012) 29. Table 14 shows SLDB’s institutional development plan. Table 14: Institutional Development Plan for SLDB Proposed Action Deadline Modify loan pricing mechanism Prior to Disbursement Tighten provisioning rules Prior to disbursement Minimize reliance on collateral Prior to disbursement Re-enforce existing mechanism for calling government guarantee Prior to disbursement Maintain staff capacity to carry out functions required of an Internal Audit Prior to Disbursement Department as well as Legal and Loan Recovery Department 63 Annex 7. Economic Analysis SAINT LUCIA: Disaster Vulnerability Reduction Project SUMMARY 1. An economic analysis was carried out to estimate the net economic benefits to be attained with the implementation of disaster vulnerability reduction activities. Net benefits result from comparing benefits to associated costs. 2. The analysis was carried out from a selected sample of subproject representative of the works to be implemented with the project. Results of the economic analysis of a sample of subprojects show that the Project is economically feasible with positive results of US$9.4 million and rate of return of 21 percent. The evaluation was complemented with sensitivity and risk analyses whose results show the soundness of the project with 95 percent probability of having benefits. 3. Overall, the Project is expected to have an important impact on Saint Lucia’s socio- economic development as the value of the stream of benefits is three times its corresponding costs, as it is shown in detail below. 4. Rationale for public sector financing. Public sector financing is the appropriate funding vehicle as proposed activities will protect critical public infrastructure from disaster risks, improve national DRM capacity, and support the improved integration of climate and disaster risk into national development planning. Importantly, project activities tie into a national priority of enhancing climate resilience in all sectors, an aim which can only be achieved by the GoSL. 5. World Bank Value Added. The World Bank offers extensive experience and expertise in supporting the design and implementation of disaster risk reduction and climate resilience programs in Saint Lucia, other OECS countries and globally. Lessons learned from implementing previous multi-sectoral DRM projects will inform the Project. In addition, the Bank’s convening power, ability to leverage donor partnerships, and mobilize additional funds to support scaled up vulnerability reduction and climate resilience activities in Saint Lucia further highlights the value of World Bank involvement. ECONOMIC ANALYSIS OF THE PROJECT 6. Objective. The objective of the economic analysis is to assess the project’s viability and to identify the variables with the highest risk for the project. This would help on the design of mitigation measures. 7. Methodology. The cost benefit analysis was carried out for the works under Component 1. A sample of subprojects was chosen based on priority given by GoSL and availability of information. The selected sample was chosen from five of eight proposed activities, which amount for about 51 percent of the estimated total cost of the project. For each of the activities, one subproject was selected as shown in Table 15. 64 Table 15: Selected Sample Project Activities for the Economic Analysis Activities Million USD Sample of Subprojects Risk Reduction in Bridges 5.4 Choc Bridge Improved River management for disaster vulnerability 2.2 Marchand River Bank reduction (i.e. Riverbank Stabilization) Rehabilitation of Community Centers 1.5 Community Center at Babonneau Land Stabilization and Road Rehabilitation post Tomas 4.2 National Highway Enhancing Coral Reed Recovery 0.5 Soufriere, Canaries, and Anse-la-Raye TOTAL 13.8 8. For each of these subprojects, a cost benefit analysis was carried out from an economic perspective, as it is not a revenue-generating project. Each subproject was evaluated by appraising costs and benefits at market prices, in line with the way service providers would be paying for them. From an economic perspective, each component was evaluated converting financial costs into economic costs eliminating taxes and subsidies, and estimating benefits as the customer surplus and other economic benefits. The results were tested against real world uncertainties through sensitivity and risk analyses. 9. Scenarios. “With” and “without” project scenarios were built to identify the incremental costs and incremental benefits associated with each subproject. The “with” project scenario considers the proposed investment is carried out and the hazard protection is on place. The “without” project scenario considers that current situation remain and so current vulnerability of infrastructure. The net benefit of each subproject was estimated as the incremental benefit of the two scenarios. 10. The subprojects were appraised measuring their flow of costs and benefits for the project lifetime, which is estimated at 25 years. Costs and benefits were expressed in constant prices of December 2012. 33 The discount rate corresponding to the opportunity cost of capital for the Caribbean Islands was estimated as 12 percent. 11. Current Situation at work sites. The works selected for the project were based on a high risk of structural failure to the 10-year event in the case of buildings and bridges, or when annual flooding occurs in the case of flood management and urban drainage. The infrastructure selected to be either repaired or rebuilt are in critical conditions and some have surpassed their lifetime, and so are more vulnerable to climate hazard conditions. A brief description of the state of the infrastructure of the sample selected is as follows: 12. According to the assessment made by FDL Consult Inc, 34 many of the bridges/crossing that failed during the hurricane Tomas were constructed of corrugated pipes, and most of the pipes were constructed more than 35 years ago and had exhibited earlier signs of structural damage. Moreover, major sections of the primary and secondary road network were rendered impassable due to a combination of factors, including land slippages, severed bridges and roads, 33 Exchange rate ECD 2.68: 1 USD 34 FDL Consult Inc. Government of Saint Lucia. Ministry of Communications, Works, Transport and Public Utilities. Hurricane Tomas Damage Assessment. December 2010 65 mudslides, fallen trees and/or utility poles. As a result some communities were completely isolated or partially accessible for several days. 13. Choc Bridge. This bridge is the primary link between Saint Lucia’s major commercial and tourist centers Castries and Gros-Islet. There are alternative routes but are limited geometrically to use by good vehicles. Moreover, the bypass routs are not designed to carry the vehicle volumes presently carried by the primary link. When the bridge cannot be used the disruption of traffic is troublesome generating not only delays on arriving to destination, but also damages to the alternate routes that are not designed for this kind of traffic, and some vehicles such as trucks and buses are not recommended to use alternate routes. 14. The Choc Bridge is the main link between two important urban centers: Castries and Gros-Islet, Castries the capital and Gros-Islet the most important touristic sites in the island. In case of traffic disruption, there are some alternate routes, mainly secondary roads that are not prepared for handling the heavy traffic. Traffic detour increases the distance from 10 km to about 37 km at much smaller speed, which increases the time spent on the road from 15 minutes to 1.5 hours . FDL Consult Inc. counted the traffic on the bridge during a 24-hour period for a week of September 2011, according to type of vehicle. As Table 16 shows about 22 thousand vehicles cross the bridge every day either way (from Castries to Gros-Islet or from Gros-Islet to Castries). Table 16: Number of Vehicles Crossing the Choc Bridge per day From Castries to From Gros-Islet to Gros-Islet Castries Total vehicles Motorcycle 62 52 114 Car 6,224 6,945 13,169 Minibus 2,179 2,231 4,410 Pick up trucks 1,622 1,999 3,621 Large Bus 135 141 276 Trucks 2 Axis 511 474 985 Trucks 3 Axis 57 52 109 Total 10,790 11,894 22,684 15. National Highway. Some spots along the national highway have been selected for the project due to high vulnerability to landslides, heavy siltation, and deterioration of road material causing potholes and landslides, when storms occur. Frequent traffic disruption comes along with rains with recurrence period as low as 2-year causing inconvenience on the main route that links the capital Castries to the main urban center in the south Vieux Fort where the Hewanorra International airport is located. The outcome can be either delay of traffic when one single lane can be used, or impassability of the route. Alternate routes are secondary roads that are not prepared for handling the heavy traffic that crosses the highway. Traffic detour increases the distance from 67 km to about 90 km Table 17 shows the average number of vehicles using the highway, according to FDL Consultant Inc. count. 66 Table 17: Number of Vehicles Crossing the National Highway per day From Castries to From Vieux Fort to Vieux Fort Castries Total vehicles Motorcycle 96 98 194 Car 8,497 8,663 17,160 Minibus 2,538 3,207 5,745 Pick up trucks 1,826 1,929 3,755 Large Bus 173 332 505 Trucks 2 Axis 574 696 1,270 Trucks 3 Axis 50 94 144 Total 13,754 15,019 28,773 16. Community Center/Emergency shelters. The community center at Babonneau was selected as representative of other community centers that are getting deteriorated with rains with recurrence periods as low as two years. The outcomes range from disruption on activities to roof damage that could even cause fatalities. The community center is very important in the life of the community, as it is used as the gathering place for meetings, social activities, academic events, and as a shelter for natural disasters, among others. As a consequence of flood occurrences, all these activities have to be suspended and damages to the the facilities have to be repaired to keep the center functioning. 17. Riverbank Stabilization Works. Flash flooding caused by rains has been causing landslides and instability on riverbank areas, bringing along property damage on buildings located nearby. It is estimated that about 40 residential dwellings are located in the prone areas selected in the sample. Owners have been suffering with house deterioration due to land instability and have done investment for repairing fissures and major structural problems around the houses. 18. Enhancing Coral Reef Recovery. The importance of coral reefs can be highlighted in several ways (a) they provide important habitat for fisheries; (b) limestone from dead coral builds white sands beaches; (c) reefs act as a barrier, reducing wave energy, and protecting the shoreline from erosion and storm damage; and (d) they are of cultural significance to many coastal societies, and have pharmaceutical potential, among other things. 19. Despite their importance and the many benefits they provide, coral reefs are threatened. In the Caribbean, an estimated 70 percent of coral reefs are threatened by human activities including overfishing, coastal development, and runoff from land. 35 Climate change is beginning to pose an overarching threat to coral reefs. Gradually warming seas have contributed to widespread coral bleaching across the Caribbean, which accompanied by increasingly intense storms in recent years and other pressure have damage many reefs. 36 20. Costs. The costs used in this evaluation consist of investment and operating costs. The investment costs included project costs and replacement costs of equipment for the lifetime of the project. Projected operating costs were based on the technical evaluation carried out during 35 Burke, L. and J. Maidens. 2004. “Reefs at Risk in the Caribbean”. Washington DC. World Resources Institute 36 Burke, l. and S. Grrenhalg, D. Prager, and E. Cooper. 2008. “Coastal Capital- Economic Valuation of Coral Reefs in Tobago and Saint Lucia”. Washington D.C. World Resources Institute. 67 the preparation phase, and they were estimated as a percentage of the investment costs. Table 18 shows the investment costs of the sample of subproject selected for this evaluation. Table 18: Costs of the Subprojects on Sample Subprojects on Sample Million USD Approach to Measure Benefits Choc Bridge 8.2 Avoided Costs Marchand River Bank 2.2 Avoided Costs Community Center at Babonneau 1.5 Avoided Costs National Highway 4.2 Avoided Costs Soufriere, Canaries, and Anse-la-Raye 0.5 Avoided Costs TOTAL 16.6 Benefits 21. Benefits. Financial benefits were not estimated, as it is not a revenue-generating project. Economic benefits were estimated in relation to damage reduction of infrastructure due to risk reduction to natural hazards or climate change. There would be primary benefits obtained by direct users of the infrastructure, and secondary benefits obtained by other stakeholders, such as the GoSL, other economic sectors etc. The private sector and civil society are key beneficiaries. The benefit was estimated only for direct beneficiaries and so results are on the conservative side, as more benefits would be obtained for the whole island and all productive sectors. 22. Economic benefits were estimated using revealed preference technique through avoided costs approach. The benefits obtained with the avoided cost correspond to the savings the beneficiaries would have when coping costs are reduced once the project is implemented. The avoided cost was measured as the net difference of the damage costs obtained for both scenarios: with and without project. Two categories were included: (a) direct damage to infrastructure (capital assets and stock comprised); and (b) direct damages to users of the infrastructure. A third category, which would occur, was not included due to lack of information, that is, the indirect impact to the productive and social sectors. 23. For each scenario the expected damage cost was estimated as the damage cost multiply by its probability of occurrence. The damage cost for each category was estimated based on damages occurred in previous events for different magnitude and storm recurrence period. A curve with total damage costs was built for both scenarios: with and without project, versus the probability of occurrence. The area 37 under the curve corresponds to the expected damage cost for each scenario. The difference between the expected damage cost with project scenario, and the expected damage cost without project scenario corresponds to the expected avoided damage costs, or expected benefits of the project. 24. The expected damage costs of direct damage on infrastructure include costs of immediate, short and medium term emergency works. According to recurrence period, the immediate works could include minor repair and cleaning, or major debris removal, critical river de-silting, diversions and temporary works. They were aimed primarily at restoring immediate 37 The area under the curve is calculated as the sum of trapezoids whose areas are equal to the average of the bases times the height. The average of the bases is the average of the damage cost, and the height is the difference between the probabilities. 68 access to the infrastructure. The short and medium term costs represent completing some of the immediate works and preserving the components of the infrastructure under direct threat of further damage. It is mainly rehabilitation works, and in general costs to reinstall it, further damage to components of the infrastructure, and replacement of damaged infrastructure for improved performance. 25. For damage cost of the infrastructure it was used the information from FDL of the typical costs ratio for bridge structure according to recurrence period taking 1:100 years as the basic case scenario as this is the recurrence period for which the investment is designed. . The cost of cleaning debris and minor repairs is added. Typical Cost Ratios for bridges structures 1:100 years Flood return period 1:50 years =100% =100% 1:5 years 82% 75% 1:10 years 84% 76% 1:20 years 91% 83% 1:50 years 100% 91% 1:100 years 110% 100% 1:200 years 121% 110% 1:500 years 142% 129% 1:1000 years 160% 145% 26. The expected damage cost of direct damages to users of infrastructure include the fuel cost as well as the cost of time spent crossing through the damage infrastructure or alternate infrastructure, compared with the costs crossing when infrastructure is operating well. 27. For the fuel cost an average efficiency was used for each type of vehicle as well as the current price per gallon (EC 15.30). For the cost of the time, an average hourly wage (XCD 15 per hour) for the tourist sector which used, as the tourism is the prevalent activity on Gros-Islet, main point of destination. Table 19 shows results for Choc Bridge. Table 19: Damage costs for Choc Bridge Fuel and Time costs Fuel Costs 000 EC Time Costs 000 EC w/o project with project w/o project with project Motorcycle 0.9 0.2 2.6 0.4 Car 790.1 210.7 296.3 49.4 Minibus 264.6 70.6 99.2 16.5 Pick-up trucks 217.3 57.9 81.5 13.6 Large Bus 16.6 4.4 6.2 1.0 Trucks 2 Axis 59.1 15.8 22.2 3.7 Trucks 3 Axis 6.5 1.7 2.5 0.4 Total 1,355 361 510 85 28. The same categories of costs were included in the riverbank stabilization subproject, for which the damage cost on houses was included. For community center subproject damage costs consisted of damage on infrastructure and revenue loss for canceling social events when service is disrupted. 69 29. Enhancing Coral Reef Recovery. The marine area of Anse-la-Raye, Soufriere and Canaries are the most extensive reef systems in Saint Lucia. Much of the reef has been declared marine reserves under the Fisheries Act Cap. 7.15 and are managed through the establishment of Marine Management Areas. Coral wellbeing may be influenced largely by events occurring on land rather than the sea. Marine Management Areas have emerged as the most promising management tool to conserve coral reefs, as they provide the most effective protection for activities such as fishing, dredging and runoff that produce sedimentation. The Project would support the Department of Forestry, MIPS&T, and WRMA, on interventions for reducing sediment loading of waterways, and for monitoring water quality in watershed in areas island- wide including Anse-la-Raye, Soufriere and Canaries. 30. These activities by themselves do not bring the health needed for the reefs, yet they are required to guarantee a successful implementation and sustainability of interventions related to the protection and recovery of coral reefs. To understand the magnitude of the benefits associated with coral reefs, the economic valuation of Coral Reefs in Saint Lucia study prepared by the World Research Institute (WRI) was taken as reference. 38 The mentioned study measured the annual benefits on the following sectors associated with coral reef: tourism, fisheries, and shoreline protection services. These sectors were chosen because of their importance in Saint Lucia’s economy and because data was available to support estimation of benefits. 31. The estimated benefits by WRI study in each sector for Saint Lucia are: (a) Tourism and Recreation. 25 percent of tourists visit Saint Lucia in part due to coral reefs and they bring direct benefits from amount spent on accommodation, reef recreation, and miscellaneous; and indirect benefits from other sectors that need to support these activities. Estimated benefits ranged from US$160 to 194 million in 2006; (b) Fisheries. Coral reef-associated fisheries have impact on jobs, cultural value, and social safety net. The economic impact was estimated from US$0.5 to 0.8 million per year; and (c) Shoreline Protection. Coral reefs in Saint Lucia protect about 44 percent of shoreline with associated benefits between US$28 to 50 million in 2007. The study also produced rough estimates of the value of local residents’ use of reefs and coastline beaches, estimated as US$52-109 million, and indirect impact from the need for boats, fuel, nets, etc estimated at US$0.5 – 0.8 million. Total annual benefits from coral reef protection range from US$243 to US$356. 32. The Coral Reef Recovery activities to be implemented under the project has a cost of US$0.5 million and therefore would need to achieve at least 0.2 percent of coral reef protection benefits to be economically viable. Results 33. Results show that the Project is economically viable with benefits of US$9 million and returns of 21 percent. Among the sample the returns are similar at around 20 percent, and the community center demonstrates benefits of 13 percent (Table 20). 38 Burke, l. and S. Grrenhalg, D. Prager, and E. Cooper. 2008 World Research Institute. 70 Table 20: Economic Results Present value of flows (Thousand USD) Economic Results COSTS BENEFIT NET BENEFIT IRR Choc Bridge 1,589 7,051 5,462 23.8% Marchand River Bank 1,639 2,788 1,149 19.1% Community Center 503 588 85 13.0% National Highway 2,034 4,699 2,665 21.5% Total Sample 5,764 15,125 9,361 21% 34. The Enhancing Coral Reef Recovery subproject is economically viable if it contributes at least 0.2 percent of the benefits derived from coral reef recovery and protection. 35. The other project activities, namely institutional strengthening and investments in hazard risk assessment capacity, would support the avoidance of further indirect losses by encouraging citizens to improve preparedness and enhancing government response capacity following major events. Sensitivity Analysis 36. The sensitivity analysis allows comparing the base case scenario with more additional scenarios to identify the extreme and most likely project outcomes. The variables identified as the ones with the greatest effect on project’s outcome are: (i) investment cost overrun; (ii) operating cost overrun; (iii) project delays; and (iv) reduction on economic benefits. 37. The sensitivity analysis allows identifying the value of the chosen variables that causes the project to exactly break even. The analysis was carried out for the economic outcome and the results show that investment costs and project delay are the most important variables for the community center, as with only one year delay on investment the project would become non viable, with same results for 29 percent increase on investment costs. For the other subprojects the room is wider for changes in selected variables, as changes on investment costs and benefits can be as high as 50 percent and the project would still show benefits. The Project can be delayed as much as five years and still show positive results. Details are shown in Table 21. Table 21: Results of the Sensitivity Analysis BREAK-EVEN OF THE PROJECT’S ECONOMIC OUTCOME Sample Subprojects Costs overrun Reduction on Delay (years) Investment Operating benefits % % # % Choc Bridge 56% 500% 6 50% Marchand River Bank 51% 600% 5 41% Community Center 29% 380% 1 14% National Highway 52% 675% 7 52% Total Sample 51% 663% 6 47% 38. Regarding the coral reef enhancement activity, sensitivity analysis shows that 100 percent increase on investment cost, would require benefits of at least 0.3% of those derived from coral reef protection. 71 Risk Analysis 39. To enhance the accuracy of the economic analysis, a risk analysis was carried out using the Crystal Ball. This software works with Monte Carlo simulation sampling probability distribution for each of the variables selected and produced hundred or thousand of possible outcomes. The results allow getting the probability of obtaining positive results with the project. The assumed probability distributions and their respective specifications for each variable are presented in Table 22. Table 22: Probability Distribution selected for each variable Triangular distribution with parameters: Investment Cost Minimum -15% Overrun Likeliest 0% Maximum 30% Triangular distribution with parameters: Operating Cost Minimum -15% Overrun Likeliest 0% Maximum 30% Custom distribution with parameters: Value Probability 0 0.50 Project Delay 1 0.30 2 0.10 3 0.05 4 0.05 Beta distribution with parameters: Reduction on Minimum -50% benefits Maximum 10% Alpha 2 Beta 3 40. The results for the economic analysis show a very sound project with 95 percent probability of having positive results and expected benefit of about US$8 million. Details are shown in Table 23. Table 23: Financial and Economic Risk Assessment Economic Analysis Sample Subprojects Expected Mean NPV Probability of Positive NPV (000US$) Choc Bridge 97% 4,038 Marchand River Bank 95% 1,449 Community Center 70% 97 National Highway 95% 2,650 Total Sample 95% 8,234 72 41. With regards to activities under Component 2, namely institutional strengthening and investments in hazard risk assessment and data management capacity, would support the avoidance of further indirect losses by strengthening the resilience of the transport and water sectors, encouraging citizens to improve preparedness and enhancing government response capacity following major events. Given the nature of this component, it is difficult to estimate the economic rate of return to project investments as there are no revenue generating activities within the component that can be used to quantify the benefits. 73 IBRD 33487 61°00'W 60°50'W Saint Lucia Channel Cap Point Pigeon Island SAINT Gros Islet LUCIA Rodney Bay Cape Marquis GROS Dauphin Choc Bay ISLET Pointe Seraphine DAUPHIN CASTRIES Grand Grand 14°00'N Anse Anse 14°00'N Grande Cul Bay de Sac Bay CASTRIES Sans Soucis Cul de Sac Marigot Bay La Croix Maingot Anse La Raye Denn er y ANSE DENNERY Fond d'or Bay Caribbean LA RAYE RAYE Denner y Dennery Sea Canaries CANARIES Mt. Gimie Praslin Praslin Bay (950 m) Tabac Mt. Tabac Grand Caille Point (678 m) PRASLIN Mon Trou Gras Point Soufrière Repos Soufrière Bay SOUFRIERE 13°50'N Ca 13°50'N Mt. Grand ne s ll e Anse de Piton Magazin (616 m) MICOUD Micoud Vierge Point Gros Piton Point Desurisseau CHOISEUL Londonderr y Londonderry Choiseul LABORIE VIEUX FORT 60°50'W Laborie Laborie Bay S A I N T L U CIA Vieux Fort SELECTED CITIES AND TOWNS 0 1 2 3 Kilometers Maria I. Vieux Fort NATIONAL CAPITAL Bay Cape Moule RIVERS 0 1 2 3 Miles Chique MAIN ROADS This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank QUARTER BOUNDARIES Group, any judgment on the legal status of any territory, or any Saint Vincent Passage INTERNATIONAL BOUNDARIES endorsement or acceptance of such boundaries. 61°00'W DECEMBER 2004