Document of The World Bank Report No: 65113 v1 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF HEALTH SYSTEM MODERNIZATION PROJECT CREDIT NUMBER 4154 ALB March 14, 2006 TO THE REPUBLIC OF ALBANIA September 15, 2011 ABBREVIATIONS AND ACRONYMS HII Health Insurance Institute HIS Health Information System MoH Ministry of Health of the Republic of Albania PDO Project Development Objectives PHC Primary Health Care PHCP Primary Health care Providers Regional Vice President: Philippe H. Le Houerou Country Director: Jane Armitage Sector Director: Mamta Murthi Sector Manager: Daniel Dulitzky Task Team Leader: Lorena Kostallari 2 REPUBLIC OF ALBANIA HEALTH SYSTEM MODERNIZATION PROJECT P082814 CONTENTS Page A. SUMMARY ............................................................................................................... 4 B. PROJECT STATUS ................................................................................................. 4 C. PROPOSED CHANGES .......................................................................................... 5 3 HEALTH SYSTEM MODERNIZATION PROJECT CREDIT NUMBER 4154 ALB (P082814) RESTRUCTURING PAPER SUMMARY The proposed restructuring is a level two restructuring to make the following changes to the Health System Modernization Project (the “Project�) being carried out by the Republic of Albania: (i) revision and cancellation of certain Project activities, and (ii) reallocation of credit proceeds. This restructuring is expected to aid in the successful completion of all Project activities before the Project Closing Date. PROJECT STATUS The Project was approved by the World Bank Board on March 14, 2006 and became effective on July 9, 2006. The Project underwent a level two Restructuring in May 2010, which included: (a) revision of a number of Project activities, (b) an 18-month extension of the original Closing Date from September 30, 2010 to March 31, 2012, and (c) revision of the results framework. Currently the Project has disbursed around 65% of the Credit proceeds. Following the Project restructuring in May 2010, Project implementation has shown good progress overall. Most Project activities have been completed or are being implemented. Under Part A, Paragraphs 2 and 3 of the Project, an information technology (IT) package was to be procured for the Health Insurance Institute. This is the main remaining activity under the Project. While there has been good progress in proceeding with procuring the hardware that forms part of the IT package, procurement of the software has suffered significant delays. The main reason for the delay is that the Health Insurance Institute delayed making a decision on the required software for developing the health insurance information system. By way of the letter dated April 22, 2011, the Republic of Albania (through the Prime Minister’s Office, Ministry of Health) has requested the Bank that the Project continue to provide hardware support to the Health Insurance Institute (under Part A, Paragraph 2 and 3 of the Project) through the purchase of some additional equipment critical for the implementation of the information system defined in the conceptual design of the Project, which has its conceptual design completed under Part A, Paragraph 3 of the Project. The 4 same letter also requests that the procurement and installation of software under Part A, Paragraphs 2 and 3 of the Project be dropped from the Project’s activities and no longer form part of the Project. The Republic of Albania also states that it will secure financing through other donors to procure and install the software according to the conceptual design. The implementation of the Project’s activities under Part A does not depend on the procurement and installation of the said software and therefore is independent of whether or not additional donors’ financing is obtained. No change to the Financing Agreement is required in this regard. The procurement plan has been updated to reflect this understanding. As a result of the fact that the Project would no longer finance the procurement and installation of software under Part A, Paragraphs 2 and 3 of the Project, the Credit proceeds allocated for this purpose (under Category 1 and 2) are proposed to be reallocated to Category 3 to further support the reform in hospital sector under Part B, Paragraph 6 and Part C Paragraph 3 of the Project through procurement of necessary medical equipment as well as testing of the hospital rationalization strategy in two districts, as requested by the Republic of Albania. In addition, the activity set out under Part B, Paragraph 1 of the Project, viz, “The facilitation of the registration and enrollment of the population to receive primary health care services, through provision of Unit Costs� has suffered significant delays, due to delayed Government decision for the production of health cards. Currently, the Health Insurance Institute is funding this activity. It is proposed that this activity be cancelled and the credit proceeds allocated to this activity under Category 6 be reallocated to Category 3 to further support the reform in hospital sector, under Part B, Paragraph 6 and Part C Paragraph 3 of the Project through procurement of necessary medical equipment as well as testing of the hospital rationalization strategy in two selected districts, as requested by the Republic of Albania. Also, the Bank has declared misprocurement for the activity set out under Part B paragraph 6 of the Project, viz: “Procurement of Medical Equipment G-ICB- 05/2010/ALB/Lot2�, through letter dated August 9, 2011, as result of violation of Bank’s Procurement Guidelines. In accordance with Section 6.03 of the applicable General Conditions incorporated by reference in the Financing Agreement, the Bank, through letter dated September 12, 2011, has cancelled SDR 697,669 (which is the amount of the financing allocated to this specific activity, equivalent to US$ 1.1 Million) from Category 3 (Part B paragraph 6 of the Project). The MoH proposes to start the implementation of the rationalization strategy for the hospitals (which strategy has already been approved by the MoH) by piloting the recommendations of the strategy in two districts. A new Project activity will be added to this effect, as requested by the Republic of Albania. The Project has no outstanding audit reports. Also, the financial management procedures are in full compliance with Bank’s requirements. The revision and changes to the Project’s activities will not impact the Project’s development objectives or the Project’s performance indicators which will remain unchanged. 5 C. PROPOSED CHANGES 1. Changes to Project activities: (a) A new Project activity will be inserted in Part C, paragraph 3 of the Project’s description and the Financing Agreement will be amended accordingly. The new Project activity is as follows: “Testing of the hospital rationalization strategy on a pilot basis, in two selected districts, through the provision of consultancy services.� (b) Under Part A paragraphs 2 and 3 of the Project, both hardware and software were to be procured. However, as result of significant delays in procurement of software (main reason being the lack of decision from the Health Insurance Institute on key directions for developing the information system for the whole health insurance), the Project will no longer include procurement of software. Procurement of hardware will still continue to be financed under the Project as planned. Since the activity is broadly worded in the Financing Agreement, no amendment to the Financing Agreement will be required. (c) Part B, Paragraph 1 of the Project, i.e., “The facilitation of the registration and enrollment of the population to receive primary health care services, through the provision of Unit Costs,� will be cancelled. The Procurement Plan has been updated to reflect these changes. 2. Reallocation Project Costs: The proposed revisions in the Project costs by components and category of expenditures are presented in the tables below. The restructured Project will include an increase of expenditures (local and foreign) for goods to finance purchase of additional medical equipment for hospitals under Part B of the Project. In addition, it includes a reduction of expenditures (local and foreign) for goods under Part A of the Project (since the Bank will no longer be financing the IT software for the Health Insurance Institute under the Project), as well as a reduction of expenditures under goods as a consequence of the cancelation of the Unit Costs under Part B of the Project (for the primary health care enrollment). 6 Project Costs (US$ Million) Project Components Current1 Proposed 1. Part A : Strengthening Sector Stewardship, 5.01 4.41 Financing and Purchasing 2. Part B: Improving PHC Service Delivery 10.00 10.06 3. Part C: Health Sector Governance and Management 1.36 1.46 Total Project Costs net of Cancelation 16.37 15.93 Cancelation per September 9, 2011 1.10 Total Project Costs 16.37 14.83 Reallocation: Category of Expenditure Amount of the Credit Percentage of Allocated Expenditures to be (expressed in SDR) Financed Current Revised Current Revised Current Revise 1 Goods other than goods n/a 690,000 320,000 85% 85% under Parts A.3 and B.6 of the Project 2 Goods under Part A.3 of n/a 2,050,000 1,520,000 85% 85% the Project 3 Goods under Part B.6 of n/a 4,102,331 5,502,331 85% 85% the Project 4 Consultants’ Services n/a 2,500,000 2,500,000 100% 100% other than under Parts A.1, A.2, A.4 and A.7 of the Project 5 Training n/a 80,000 80,000 100% 100% 1 The project has had a previous restructuring, hence the current figures reflect the latest approved costs. 7 6 Unit Costs under Part n/a 500,000 75% 75% B.1 of the Project 7 Small Grants under Part n/a 100% 100% B.7 of the Project 8 Incremental Operating n/a 80,000 80,000 100% 100% Costs 9 Unallocated n/a - - Total Amount Net of 10,002,331 10,002,331 Cancellation Cancellation per 697,669 697,669i September 9, 2011 Total Amount 10,700,000 10,700,000 i The amount is cancelled as per the Bank’s cancellation letter of September 9, 2011 8