The World Bank Ecuador - Sustainable Family Farming Modernization Project (P151963) REPORT NO.: RES40813 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ECUADOR - SUSTAINABLE FAMILY FARMING MODERNIZATION PROJECT APPROVED ON JULY 15, 2015 TO REPUBLIC OF ECUADOR AGRICULTURE AND FOOD LATIN AMERICA AND CARIBBEAN Regional Vice President: J. Humberto Lopez Country Director: Marianne Fay Regional Director: Anna Wellenstein Practice Manager/Manager: Preeti S. Ahuja Task Team Leader(s): Remi Charles Andre Trier, Augusto Garcia The World Bank Ecuador - Sustainable Family Farming Modernization Project (P151963) I. BASIC DATA Product Information Project ID Financing Instrument P151963 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 15-Jul-2015 30-Jun-2021 Organizations Borrower Responsible Agency REPUBLIC OF ECUADOR Ministry of Agriculture and Livestock Project Development Objective (PDO) Original PDO The project development objective is to enhance incomes of small and medium sized farm households by supporting more productive and climate-smart use of land and water. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed COFN-C1410 04-Sep-2015 31-May-2016 14-Jun-2016 30-Jun-2021 20.00 4.55 15.45 IBRD-85150 15-Jul-2015 09-Oct-2015 16-Dec-2015 30-Jun-2021 65.00 13.12 51.88 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Ecuador - Sustainable Family Farming Modernization Project (P151963) I. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES A. Project Status: Since November 2019, the project shows Moderately Satisfactory (MS) ratings for Achievement of Development Objective (DO) and Implementation Progress (IP) reflecting progresses in implementation. The project is also rated as MS for Overall Safeguards compliance. In 2017 and 2018, the project has been strongly affected by low budget allocations and unavailability of funding to pay for the Value-Added Tax (VAT), that have prevented the Project Implementation Unit (PIU) from executing activities as planned. In September 2017, the PIU requested a budget allocation of USD 29.4 million for the 2018 calendar year (including USD 19.6 million. from the WBG, USD 6.8 million from the Spanish co-financier, and USD 3.0 million. in local counterpart funding), but it received an allocation of only USD 1.9 million, which has prevented it from launching the procurement processes for the civil works and technical assistance for 16 sub-projects. An increase of USD 7.5 million to the initial budget allocation was authorized only at the end of August 2018, after eight months of bureaucratic processes, allowing the PIU to resume project implementation at a faster pace. This acceleration of implementation started showing effect in CY 2019, which justified the upgrading of November 2019. During FY 2020, the PIU managed to enhance the implementation pace as showed in next paragraph with the following results already achieved: 11 sub-projects completed (Group 1), 26 sub-projects completed or close to (Groups 2 and 3), and 22 sub-projects (Groups 4 and 5) under preparation. It is likely that the project will need an extension of closing dates to implement the sub-projects of Groups 4 and 5. Despite the external restriction on the execution of project funds, the PIU and the Under-secretariat for Irrigation (SIPT) have managed to strengthen the sub-projects portfolio by preparing the pipeline. The pipeline now includes 59 sub-projects organized into five groups. With the current pipeline, subject to further consolidation by the end of FY 2020, the project will benefit 8,577 families (95% of target) and 9,680 ha (92% of target). Details are provided below: (i) Group 1 (implemented in CY 2018-19): 11 sub-projects have been completed (these sub-projects representing USD 4.3m. for works, supervision and technical assistance benefit 467 families and enable the modernization of 850 ha); (ii) Group 2 (CY 2019-20): 14 sub-projects (USD 8.13m., 3,360 families, and 2,400 ha) already completed or close to be; (iii) Group 3 (CY 2019-20): 12 sub-projects (USD 8.3m., 1,020 families, and 1,600 ha) also already completed or close to be; (iv) Group 4 (CY 2020-21): 10 sub-projects (USD 12.8m., 1,280 families, and 2,050 ha) are under preparation at the PIU/SIPT level; and (v) Group 5 (CY 2021): 12 sub-projects (USD 19.0m., 2,450 families, and 2,780 ha) will have feasibility studies carried out by a consultant firm or by SIPT. The disbursement rate currently stands at 20.2% for the WBG and 20% for the co-financier, the Spanish Cooperation. Considering the strong pipeline of sub-projects, and provided that the project will receive the required budget allocation in 2020, the disbursement rate is expected to reach 30 percent at the end of Q4-FY2020 and 50 percent by Q4-FY 2021. The inclusion of VAT as eligible expense in the WBG loan proceeds will contribute to remove a major bottleneck for the project and enhance the disbursement rate. B- Proposed changes and rationale: In an effort to optimize the use of financial resources and avoid further implementation delays due to the lack of liquidity and fiscal resources to finance VAT fees, the Government of Ecuador requested the amendment of the The World Bank Ecuador - Sustainable Family Farming Modernization Project (P151963) following Loan Agreements, in order to allow for the financing of VAT with loan proceeds (Oficio Nro.MEF-SFP-2020- 0171-O, dated February 18, 2020): Loan No. Project Name 8591 Risk Mitigation and Emergency Recovery Project 8542 Supporting Education Reform in Targeted Circuits Project 8515 Sustainable Family Farming Modernization Project 8946 Social Safety Net Project 8667 Transformation of the Tertiary Technical and Technological Institutes Project Therefore, the involved World Bank Project Managers have worked with the respective implementation units and the Ministry of Economy and Finance to define the changes in each project’s scope associated with said request. Consequently, project documents and implementation plans have been updated accordingly. An umbrella amendment to the Loan Agreement has been prepared and is attached to this Restructuring Paper. II. DETAILED CHANGES