The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) REPORT NO.: RES29551 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF CAPACITY BUILDING PROJECT FOR EXTRACTIVE INDUSTRIES MANAGEMENT FRAMEWORKS APPROVED ON FEBRUARY 28, 2017 TO REPUBLIC OF MADAGASCAR ENERGY & EXTRACTIVES AFRICA Regional Vice President: Makhtar Diop Country Director: Mark R. Lundell Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Sheila Khama Task Team Leader: Remi Pelon The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) ABBREVIATIONS AND ACRONYMS ASM Artisanal and Small-Scale Mining BCMM National Bureau of Mining Cadaster BE Bank-Executed CPF Country Partnership Framework CSO Civil Society Organization EITI Extractive Industry Transparency Initiative LGIM Large Scale Mining Law MPMP Ministry of Mines and Petroleum OMNIS Strategic Industries National Office PAPSP Public Sector Performance Support Project PDO Project Development Objective PIU Project Implementation Unit PREA Program for Public Administration Efficiency RE Recipient-Executed SCD Systematic County Diagnostic The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P158889 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 28-Feb-2017 Organizations Borrower Responsible Agency Republic of Madagascar Ministry of Strategic Resources Project Development Objective (PDO) Original PDO The Project Development Objective is to improve capacity to develop legal, regulatory, and institutional frameworks for an effective and transparent management of extractive industries. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A3272 28-Feb-2017 06-Apr-2017 06-Apr-2017 29-Jun-2018 1.40 0 1.40 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The rationale for restructuring involves: (i) a change in institutional arrangements, and associated financial management and procurement arrangements, to allow the creation of a project implementation unit within the Ministry of Mines and Petroleum (MPMP); (ii) changes to proposed activities and indicators, to respond to the evolving context of extractive industries in Madagascar; and (iii) an extension of the project closing date. 2. The Project was originally approved in February 2017 and the Grant was formally signed, making it effective on March 13, 2017. By June 2017, a year before the original Closing Date, the Designated Account had not been opened, the Coordinator was not hired and none of the procurement had been initiated. In addition, the President of Madagascar announced publicly on June 14 that the Mining Code revision was put on hold, which changed the overall context and invited to refocus some planned activities. 3. As a result, Project performance was rated moderately unsatisfactory both for Implementation Progress (IP) and for Development Objective (DO) as per the last ISR approved on September 6, 2017. During the July 2017 implementation support mission, several measures were discussed and approved, including a possible restructuring. An official request was received from Government on September 20, 2017. 4. Institutional arrangements. It was found that delays in Project progress were mainly attributable to the institutional arrangements. In the absence of an existing Project Implementation Unit (PIU) within MPMP, which is the Implementing Agency, it had been decided to host it at the Program for Public Administration Efficiency (PREA), a coordination unit within the Presidency. This was originally found relevant because PREA was in charge of implementing the World Bank-financed Public Sector Performance Project (in French PAPSP), including its mining sub-component. However, in July 2017 it had become clear that PREA was largely overwhelmed dealing with a multiplicity of sectors and projects financed by the World Bank as well the African Development Bank and the European Union. In addition, the “outsourcing” of the PIU outside the Implementing Agency resulted in delays, challenging coordination, and a lack of ownership. MPMP itself was struggling to coordinate and make the most out of different initiatives on mining launched by other donors, especially GIZ and the African Development Bank. For those reasons, it was proposed to create a small PIU within MPMP to implement the present Project and harmonize donor projects in the sector. 5. Change in activities. Whereas during project preparation, the revision of the Mining Code was expected to happen soon, the the President’s decision not revise the mining code shifted the priority from producing new rules and institutional frameworks to enforce a new sector law toward optimizing the existing regulatory framework within the context of current laws. This, however, does not affect the entire project design because the Petroleum Code is still expected to be revised by October 2017 and the transparency activities, in particular the support to the Extractive Industry Transparency Initiative (EITI), were proceeding as planned. The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) 6. Change in Closing Date. The original Closing Date had been set on June 29, 2018, but because of the delays an additional 12 months was found to be necessary to put the new PIU in place and successfully implement the project. 7. The proposed changes do not affect the project development objective and safeguard categories. 8. The have been no disbursements of the project to date, and there are thus no overdue audit reports and interim financial reports. II. DESCRIPTION OF PROPOSED CHANGES A. Change to Components and Cost 9. The project aims to help Government increase transparency and effectiveness in the extractive industry sector by improving the relevant legal, regulatory and institutional frameworks. To this end, the Ministry of Mines and Petroleum’s (MPMP) had planned, inter alia, to reform the Mining and Petroleum Codes, and associated regulatory frameworks. However, given the lack of consensus on certain topics relating the mining sector between Government, civil society, and the private sector, as well as the unfavorable investment and political climate, the President decided to temporarily suspend the Mining Code reform. The Mining Directorate has instead decided to focus on formalizing the precious and semi-precious stones sector, notably through improved traceability, as well improving mining inspection and access to geological knowledge. The Petroleum Code is still expected to be presented in Parliament in October 2017. The project components will be changed as follows: 10. Component A (US$ 0.6 million) - Legal and Technical Advisory Support for Licensing (former); Technical Assistance to Improve Frameworks for Core Mining Management Functions (new). This component will focus on improving frameworks for core mining management functions, and not only licensing but also mining inspection and geological survey frameworks, to accompany the change in government priorities. The MPMP has begun undertaking regular field missions, with the financial support of the National Mines Committee (CNM), in particular to train local authorities and undertake technical inspections of mining operations. The MPMP wishes to accompany these efforts by strengthening the regulatory and organizational framework surrounding these operations, for example drafting mining licensing reporting templates, as well as regulations, procedures (arrêtés) and implementation documentation for mining inspection and geological surveys. This would help to strengthen their capacity and tools available to verify operators' declarations and product traceability. Training would be provided to civil servants for all new regulations and administrative procedures. Activities related to the petroleum- licensing framework will be removed from this component and included under component B. 11. Component B (US$ 0.25 million) - Capacity Building for Sector Management and State Participation (former); B. Technical Assistance to Improve Frameworks for Managing Petroleum Operations (new). Given the suspension of the Mining Code reform, activities related to the drafting of regulations, procedures (arrêtés) and implementation documentation for the application of the new Mining Code, as well as the study on the management of state participation in mining ventures under the new Code, have been removed. This component will now focus on petroleum-related activities, and include Technical Assistance to Improve Petroleum Licensing (previously under component A), as well as Advisory Support on Government fiscal take and State Participation. The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) 12. Component C (US$ 0.3 million) - Support to Transparency Initiatives and Stakeholder Engagement (former); Support to Transparency and Traceability Mechanisms (new). This component has been revised to add capacity building to develop precious stones and gemstone traceability mechanisms. Traceability is currently hindered by the trafficking of “Laissez- passer” and false declarations. By introducing stringent traceability mechanisms, the Government aims to increase formalization and improve the correct allocation of royalty payment to communes, thus reinforcing the virtuous circle of good governance. Activities related aimed at increasing transparency within the sector through support to EITI will remain unchanged. 13. Component D - Project Management (US$ 0.25 million). This component has been revised to add an FM and procurement specialists to the new PIU that will be created within the MPMP. Currently, fiduciary staff within the PREA was shared with other projects, and notably the Public Sector Performance Project (PAPSP). Providing the AEITF project with its own fiduciary staff will help to strengthen implementation. They will be seconded by staff appointed from within the MPMP, which will benefit from a of knowledge, therefore helping to build capacity and sustainability. B. Change in Implementation Arrangements 14. The project is currently managed by the PREA (Programme de réformes de l’Administration Publique), which is housed within the Presidency of the Republic of Madagascar. However, the PREA suffers from weak capacity, especially with regards to procurement, affecting all projects, compounded by poor collaboration between the PREA and MPMP. This has resulted in poor project performance, as testified by the fact that no contract has yet been signed and no activity commenced. As a result, the MPMP has requested that a PIU be established within the MPMP to manage the TF. This unit would also be responsible for the coordination of the different sector-related projects supported by various donors and partners (WB, AfDB, EU, Australian Government, US State Department, etc.), which are currently dispersed between PIUs and lack harmonization. 15. The PIU will be set up as a coordination cell reporting the Director of Mining and Geology. It will be led by a Coordinator hired under the funds of the Project. His terms of references will be approved by the World Bank and his responsibilities will include implementing the work program in accordance with the provisions of the Grant Agreement, facilitating the consultants’ work and all the project associated contracts, reporting to the World Bank in accordance to fiduciary and safeguards obligations, coordinating between the different units within MPMP but also with other Administrations, coordinating between different donor programs (including other World Bank financed projects like PAPSP). The Coordinator will be assisted by a fiduciary team composed of an accountant, a financial management officer, a procurement officer and a procurement technical assistant. 16. A fiduciary assessment of MPMP was undertaken and the conditions for a satisfactory PIU identified as follows. On Financial Management, the conclusion is that the PIU financial management arrangements will meet the Bank’s minimum requirements under OP/BP10.00 once the mitigation measures are implemented. The mitigation measures will be implemented during the first three months after the restructuring approval date and include: (i) the preparation and adoption of a Project Implementation Manual (including financial management procedures); (ii) the recruitment of a financial management officer, with qualifications and experience satisfactory to the Bank ; (iii) the selection of a qualified Accountant from the current staff of Ministry of Mines and Petroleum (MPMP) who will assist the FM Officer in the day-to-day project management. The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) 17. On Procurement, the conclusion is that the PIU will meet the Bank’s minimum requirements once the following mitigation measures are implemented: (i) the preparation and adoption of a Project Implementation Manual (including procurement procedures); (ii) the recruitment of a procurement technical assistant, with qualifications and experience satisfactory to the Bank, to support the Procurement Officer from the Unité de Gestion des Marchés Publics (UGMP) assigned to the project. C. Change in Closing Date 18. The original Closing Date was June 29, 2018; the proposed new Closing Date is June 29, 2019. This addition of 12 months is critical to account for the delay but also the ramping up of the new PIU to be created. I. SUMMARY OF CHANGES Changed Not Changed Change in Results Framework ✔ Change in Components and Cost ✔ Change in Loan Closing Date(s) ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Change in Implementing Agency ✔ Change in Project's Development Objectives ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) Change in Legal Covenants ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE New mining licensing reporting templates elaborated. Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 16-Jan-2017 28-Jun-2019 Regulations, procedures (arrêtés) and implementation documentation drafted for mining inspection and geological survey function. Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 16-Jan-2017 28-Jun-2019 Petroleum licensing regulations and procedures drafted. Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 16-Jan-2017 28-Jun-2019 Precious stones traceability mechanism designed. Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) Value No No Yes Revised Date 27-Feb-2017 28-Jun-2019 Intermediate Indicators IO_IND_TABLE Mining licensing website is updated Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 16-Jan-2017 28-Jun-2019 Number of oil license bidding rounds organized Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 1.00 Revised Date 16-Jan-2017 28-Jun-2019 Number of civil servant trainings organized in the capital and the regions Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 30.00 Revised Date 16-Jan-2017 28-Jun-2019 Statutes of the National Oil Company Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 16-Jan-2017 28-Jun-2019 Assessment of Environmental and Social frameworks completed Unit of Measure: Yes/No Indicator Type: Custom The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) Baseline Actual (Current) End Target Action Value No No Yes Marked for Deletion Date 16-Jan-2017 27-Dec-2019 Number of EITI events supported Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 5.00 Revised Date 16-Jan-2017 28-Jun-2019 Review of ASM formalisation efforts Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Marked for Deletion Date 16-Jan-2017 27-Dec-2019 OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component A. Technical Component A. Technical Assistance to Improve Assistance for an Improved 0.40 Revised 0.60 Frameworks for Core Mining Licensing Framework Management Functions Component B. Technical Component B. Technical Assistance to Improve Assistance for Legal and 0.50 Revised 0.25 Frameworks for Managing Institutional Development Petroleum Operations Component C. Support Extractive C. Support to Transparency Sector Transparency and 0.30 Revised 0.30 and Traceability Mechanisms Stakeholder Engagement
 Component D. Project Component D. Project 0.20 Revised 0.25 Management
 Management
 The World Bank Capacity Building Project for Extractive Industries Management Frameworks (P158889) TOTAL 1.40 1.40 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-A3272 Effective 29-Jun-2018 29-Jun-2019 29-Oct-2019 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed Note to Task Teams: End of system generated content, document is editable from here.