The World Bank Poverty Alleviation Fund II (P105860) REPORT NO.: RES28896 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF POVERTY ALLEVIATION FUND II APPROVED ON DECEMBER 6, 2007 TO MINISTRY OF FINANCE AGRICULTURE SOUTH ASIA Regional Vice President: Annette Dixon Country Director: Qimiao Fan Senior Global Practice Director: Juergen Voegele Practice Manager/Manager: Shobha Shetty Task Team Leader: Mio Takada, Kamran Akbar The World Bank Poverty Alleviation Fund II (P105860) BASIC DATA Product Information Project ID Financing Instrument P105860 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 06-Dec-2007 31-Dec-2018 Organizations Borrower Responsible Agency Ministry of Finance Poverty Alleviation Fund Project Development Objective (PDO) Original PDO The project development objective is to improve living conditions, livelihoods and empowerment among the rural poor, with particular attention to groups that have traditionally been excluded by reasons of gender, ethnicity, caste and location. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed COFN-C1380 30-Dec-2013 12-May-2014 12-May-2014 31-Dec-2018 5.10 2.14 2.44 COFN-C1200 08-May-2008 08-May-2008 31-Jul-2008 30-Jun-2017 4.10 3.92 0 IDA-H8570 05-Jun-2013 08-Jul-2013 04-Oct-2013 31-Dec-2018 80.00 73.37 1.02 IDA-H6720 02-Jun-2011 13-Jul-2011 11-Oct-2011 31-Dec-2014 65.00 63.43 0 IDA-49220 21-Apr-2011 30-Jun-2014 27.50 0 27.80 IDA-H3370 06-Dec-2007 31-Jan-2008 19-Mar-2008 30-Jun-2014 99.97 99.46 0 The World Bank Poverty Alleviation Fund II (P105860) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. The Project is progressing well towards the achievement of PDO, and is likely to achieve all the activities by July 2018, well before the current closing date (December 31, 2018). As of November 28, 2017, the Project has disbursed 98.6 % of the IDA Grant (US$ 80 million equivalent). International Fund for Agriculture Development (IFAD) is the co-financier of the Project, and 14 % of its co-financing (US$ 5 million) has been disbursed. The withdrawal application has been recently submitted for IFAD amounting to US$ 1.5 million. 2. In February 2016, the Project made a first restructuring of the AF2 to respond to the earthquake crisis. It added the following sub-components; Component A.2 Small-Scale Village and Community Infrastructure Projects; Component B.2 Income Generating Sub-projects; Component D1 (ii) Revitalization and formation of COs through Social Mobilization; and Component D3 (xiii) Skill Enhancement for Disaster Recovery and Livelihoods. It was estimated that around US$ 11.5 million (US$ 8.6 million from IDA and $ 2.9 million from IFAD) with a proportion of 75 % of IDA and 25 % of IFAD would be directed towards the emergency needs in the earthquake hit areas. In addition, a new activity- Knowledge Management (US$ 2 million), which is fully funded by IFAD, was added under the Component E- Project Management. 3. As there was no third additional financing, the Project made use of its originally allocated funds to extend support to the Community Organizations (CO) members in the earthquake hit districts. The funds originally allocated for pocket area development and market development, as well as operational costs were reduced as the project had low utilization for these components at the time of the 1st restructuring. B. Rational for Level 2 Restructuring 4. The Project recently went through a detailed assessment for the remaining period and discovered that it would spend less on the earthquake and knowledge management related activities, while it would face shortage of funds for the support to new COs. It is currently estimated that the earthquake component would require $7.5 million, and the knowledge management component would require $ 0.9 million. The Project made the following assessment on the fund needs for the remaining period. 5. Less Expenditure on Earthquake Response related activities. As of October 27 2017, the earthquake related activities are progressing well while the actual demand turned out to be less than the original estimate. The Project would need only $7.5 million for earthquake for the revised targets as described below. (a) Component A.2 Small-Scale Village and Community Infrastructure Projects: Original estimates identified 290 projects. 34 projects have already been repaired by communities. Hence the revised target is only 256 community infra. (b) Component B.2 Income Generating Sub-projects: The original estimate indicated that around 40,000 CO members need asset/cash transfer support for revitalizing the RF. Detailed analysis indicated that the only around 14,000 households were eligible. The World Bank Poverty Alleviation Fund II (P105860) (c) Component D1 (ii) Revitalization and formation of COs through Social Mobilization: Originally, PAF was supposed to revitalize existing 4900 Cos and to form new 1,100 Cos in the remaining 76 VDCs. These exiting 4900 COs were revitalized to conduct rehabilitation activities, but the formation of new COs have not been approved by the PAF Board, considering the insufficiency of the funds in on-going new CO formation in 15 districts under the regular window. Only 76 new Cos were established based on the severity of EQ. (d) Component D3 (xiii) Skill Enhancement for Disaster Recovery and Livelihoods; Initially, the training was planned for 4 days for around 14,000 skilled persons, however later as per the guideline of the Department of Urban Development and Building Construction (DUDBC), all the skills training should be conducted in line with their suggested content which required 7 days training. The number of training events was adjusted to 180 events (for 25 Participants/event), targeting 4500 semi / skilled masons/ carpenters. 6. Less expenditure on Knowledge Management. Knowledge Management activities progressed slowly initially due to the delay in hiring knowledge management consultants. For the last six months, the activity started to pick up speed, but the duration of these consultancies would be expected to be shorter than the original plan. Moreover, some of the international consultancy services turned out to be difficult due to the VAT exemption registrations. Thus, the Project is expected to spend only around US$ 0.9 million compared to the original estimate of US $ 2 million. Even with the less amount, the Project is expected to develop and deliver more than 240 knowledge products and grant more than 250 CO innovation awards as per the original results framework. 7. More funds needed for block grants to new COs. At the time of the last restructuring, the activities under pocket area development, peri-urban pilot and market linkages were progressing very slowly. It was therefore agreed to allocate the portion of the block grants funds to the priority needs of the earthquake hit areas. These activities started picking up speed and show high potential for the future program of the Project in the direction for rural enterprise development. In addition, after a thorough review of project data, it turned out that there are a number of community infrastructure schemes which are still progressing while the costs are escalated due to the cost escalation of inputs and materials. It is now clear that funds allocated for the block grants for new Cos under Component A (Community infrastructure), B (Income Generating) , C (Product Development and Market Linkages) fall short to meet the target of 32,000 Cos. 8. More funds would be needed for Operational costs. At the time of the last restructuring, the operational cost was low utilization. Hence it was agreed to allocate a portion of funds allocated for the operational costs for the emergency response. PAF deputed its portfolio managers at district level, which escalated the operational cost due to office management costs in 55 districts. C. Disbursement plan for the remaining period 9. The project confirms its commitment to fully disburse the funds under the AF 2 and IFAD co-financing within the agreed project timeframe. As of November 2017, the following disbursement forecast was made based on the workplan. (a) IDA (H8570): The current balance stands at US$ 10.9 million. The withdrawal application for the remaining balance has been submitted on November 7, 2017, and is being processed. (b) IFAD (C1380): The current balance stands at US$ 3.9 million. The withdrawal application (US $ 1.5 million) has been submitted on November 7, 2017, and is being processed. The next withdrawal application (US $ 1.5 million ) is expected in January 2018, while the last one (US $ 0.9 million) in April 2018. II. DESCRIPTION OF PROPOSED CHANGES 10. In view of the above, and to fully utilize the remaining balance of the AF2 of IDA and IFAD co-financing, the Government of Nepal requested both the Bank and IFAD on August 23, 2017, to reallocate the proceeds of the Financing between Categories. The World Bank Poverty Alleviation Fund II (P105860) 11. Change of Percentage of Expenditures Financed. As per the request from the GoN, it has been agreed with IFAD that they would increase their proportion of co-financing from 25 % to 75 % for the earthquake-related activities under Component A.2, Component B.2, Component D1 (ii), Component D3 (xiii). The retroactive reallocation of funds as of the date of the GoN's request (August 23, 2017) was also agreed with the IFAD. Accordingly, for the earthquake related activities, IDA will cover 75% of the amount disbursed from February 18, 2016 till August 22, 2017 and 25% of amounts disbursed from August 23, 2017. IFAD will cover 25 % of the amount disbursed from February 18, 2016 till August 22, 2017 and 75% of amounts disbursed from August 23, 2017. 12. Change in Components and Cost. Based on the assessment as described in the section I and on Change of Percentage of Expenditures Financed, the cost for each component was reviewed and revised (Section IV). 13. Reallocation between Disbursement Categories. Based on the revised component costs, and on the agreement with IFAD, the reallocation of the funds between categories was proposed (Section IV). Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. III. SUMMARY OF CHANGES Changed Not Changed Change in Components and Cost ✔ Reallocation between Disbursement Categories ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Results Framework ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ The World Bank Poverty Alleviation Fund II (P105860) Change in Implementation Schedule ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Small-Scale Village and Small-Scale Village and 76.98 Revised 73.64 Community Infrastructure Community Infrastructure Income Generating Sub- Income Generating Sub-Projects 89.51 Revised 92.34 Projects Product Development, Market Product Development, Market 17.28 Revised 20.28 Linkages and Pilots Linkages and Pilots Capacity Building and Capacity Building and 43.15 Revised 39.11 Implementation Support Implementation Support Project Management, Planning Project Management, Planning 17.08 Revised 18.63 and M&E and M&E TOTAL 244.00 244.00 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-H8570-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: BG , CS by Part Org 41,950,000.00 42,710,728.92 46,200,000.00 100.00 100.00 The World Bank Poverty Alleviation Fund II (P105860) iLap Category Sequence No: 2 Current Expenditure Category: GS,Wks,CS other than PO,TR 3,900,000.00 1,332,258.87 2,000,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Incremental Operating costs 2,150,000.00 1,226,017.70 2,315,000.00 80.00 80.00 iLap Category Sequence No: 4 Current Expenditure Category: BG, CS by POs 4,200,000.00 0.00 2,100,000.00 75.00 25.00 iLap Category Sequence No: 5 Current Expenditure Category: CS and Training Workshops 1,200,000.00 0.00 785,000.00 75.00 25.00 Total 53,400,000.00 45,269,005.49 53,400,000.00 Note to Task Teams: End of system generated content, document is editable from here.