The World Bank Public Sector Modernization Project III (P149913) REPORT NO.: RES37268 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PUBLIC SECTOR MODERNIZATION PROJECT III APPROVED ON SEPTEMBER 30, 2015 TO REPUBLIC OF ARMENIA GOVERNANCE EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Sebastian Molineus Senior Global Practice Director: Edward Olowo-Okere Practice Manager/Manager: Daniel J. Boyce Task Team Leader: Arman Vatyan, K. Migara O. De Silva The World Bank Public Sector Modernization Project III (P149913) ABBREVIATIONS AND ACRONYMS APSAS Armenia Public Sector Accounting Standards CSC Civil Service Council CSO Civil Service Office DPM Deputy Prime Minister EKENG e-Governance Infrastructure Implementation Unit FFPMC Foreign Financing Project Management Center GFMIS Government Financial Management Information System IPSAS International Public Sector Accounting Standards PDO Project Development Objective PMG Project Management Group PSMP-3 Public Sector Modernization Project III The World Bank Public Sector Modernization Project III (P149913) 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 P149913 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 30-Sep-2015 31-Dec-2020 Organizations Borrower Responsible Agency Republic of Armenia Office of the Government Project Development Objective (PDO) Original PDO The project development objective (PDO) is to improve quality of the public financial reporting and to improve access to selected enhanced e-government services. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-85390 30-Sep-2015 18-Nov-2015 06-May-2016 31-Dec-2020 21.00 3.28 17.72 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Public Sector Modernization Project III (P149913) Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Status 1. Progress in achieving the Project Development Objective (PDO) of the Public Sector Modernization Project III (PSMP-3) is mixed. As of mid-term, PSMP-3 is well positioned to meet the second part of its PDO that relates to improving access to selected enhanced e-government services. In particular, given advances in the e-Consulate system that was launched in May 2018, the Project has over-achieved the target for the PDO-level indicator of reduced time for processing a passport extension request (current value is 24 hours versus a target of 48 hours from a baseline of 500 hours). Likewise, it has achieved about 50 percent of the target for the PDO-level indicator related to increased access to e-consular services for issuing citizenship, civil status certificates and statements on any existing criminal records. These achievements are significant considering that they benefit both citizens in the country and the diaspora that are the largest in the world. Beyond the indicators, the project also launched in May 2019 the whistle-blowing platform that provides the Government with a tool for fighting corruption, one of the key priorities of the new Government following the “Velvet revolution” in 2018. Nevertheless, several e-government services remain to be deployed that would improve delivery of public services as well as provide additional benefits to the citizens. Moreover, the PSMP-3 has yet to advance in achieving the part of the PDO that aims to improve quality of financial reporting. 2. The project ratings are currently Moderately Unsatisfactory for both PDO achievement and implementation progress largely due to delays in implementing three extremely important activities. These activities relate to the Government Financial Management Information System (GFMIS) (Public Financial Management Information Systems) under Component 1, the pre-trial case management system, and strengthening the policy and institutional setup of e-government management both under Component 2 (e-Governance Solutions for Improved Service Delivery). These pending activities constitute over 50 percent of project funding and, as a consequence, the disbursement and commitment levels remain low (disbursement plus commitment represent 25% of the loan, currently). 3. As of June 2019, a new Project Steering Committee, headed by the Deputy Prime Minister (DPM), Mr. Tigran Avinyan, has also been established which augurs well for the PSMP-3. The DPM is also in charge of the Government’s new, comprehensive e-Government reforms. The DPM’s leadership will enhance ownership of the project that will ensure high level attention to project implementation that will facilitate improvements in coordination arrangements going forward and better inform how best to fine tune project’s e-governance activities. Specifically, under the DPM’s leadership, PSMP-3’s relevance and its e-governance activities would be better aligned with Government priorities that further enhance government-citizen interaction and the feedback mechanism (G2C), transparency, accountability, and overall anti-corruption reforms of the government. Moreover, the Project Management Group (PMG) will now be reporting to the DPM. The PMG will also assume fiduciary functions for the PSMP-3 under the DPM’s office that were moved from the Project Implementation Department (PID) within the Ministry of Finance (following dissolution of the Foreign Financing Project Management Center in April 2019). The World Bank Public Sector Modernization Project III (P149913) Rationale for Restructuring 4. The Government, in a letter dated May 29, 2019, requested to extend and restructure the project to enable achievement of the desired outcomes and strengthen the project’s support to the Government Program adopted in February 2019 and GovTech agenda, with the project development objective remaining unchanged. The Government requested an extension of the closing date by 23 months (from December 31, 2020 to November 30, 2022) to enable implementation and completion of activities critical to achieving the desired outcomes and strengthening the project’s support to the Government Program. In addition to the extension, the project will be restructured to:  revise the results framework to better reflect what can be realistically achieved at as the final outcomes, particularly with respect to quality of financial reporting and to better align results with project activities;  update the implementation arrangements following the latest Government decision to restructure project management arrangements with PMG moved under DPM’s office; and  adopt a single disbursement category to allow for flexibility in financing project activities. 5. The Bank team endorses the Government request subject to strong commitment for implementing the most critical pending activities/reforms by MoF, E-Governance Infrastructure Implementation Unit (EKENG) and the Office of the Prosecutor General with respect to the GFMIS, strengthening the policy and institutional setup of e-government management, and the pre-trial case management system, respectively. Further implementation delays of these major activities, could pose a serious risk for achieving the PDO, even after an extension. Accordingly, the Bank team agreed on a time-bound action plan with the DPM’s office, PMG, and all beneficiary agencies. In addition, the Bank emphasized the need for a clear and strong monitoring arrangement between all Government stakeholders and proactive leadership of the DPM’s Office in advancing project implementation. 6. While the project’s institutional arrangements have been changed twice in the last two months, the project management capacity remains satisfactory. Fiduciary performance (both financial management and procurement) continues to be satisfactory with the project in good standing in terms of financial reporting and external audits. Moreover, as mentioned above, the Project’s leadership under DPM is a positive development towards improving project implementation and ensuring achievement of project outcomes. II. DESCRIPTION OF PROPOSED CHANGES 7. The key changes proposed under this restructuring are the revisions to (a) the results framework; (b) loan closing date; (c) reallocation between disbursement categories; and (d) institutional arrangements. In addition, the implementation schedule, risk rating, and disbursement estimates will be updated. Likewise, the reference to the Civil Service Council (CSC) will need to be replaced with Civil Service Office (CSO) given changes in the legal framework for the entity. Results Framework 8. The PDO will not be revised. However, given the delays in GFMIS and the implementation of consolidated financial statements that are compliant with the Armenia Public Sector Accounting Standards (APSAS), the results The World Bank Public Sector Modernization Project III (P149913) framework needed to be recalibrated to reflect what could realistically be achieved under the project even with the proposed extension. 9. The PDO-level indicator “Improved quality of annual financial reporting” will be maintained but will now have a new end-target value of “Three selected public administration entities that are in charge of sectors amounting to 10 percent of the state budget expenditures, prepare sustantially APSAS compliant financial statements”. This replaces the original target of “Financial reports for two selected pilot sectors prepared annually and are comparable with the approved budget, and include information on revenue, expenditure, financial assets and liabilities, guarantees and long-term obligations”. 10. The relevant intermediate results indicator “Rollout and use for financial reporting (annual financial statements) of newly adopted APSAS (based on International Public Sector Accounting Standards, IPSAS)” will be replaced by “Establish preconditions required for consolidation of the financial statements” with an end-target value of “APSAS compliant Financial statements for three selected public administration entities are prepared on an annual basis and include substantial information on assets and liabilities, income and expenses, and net assets.” 11. The intermediate results indicator “Increase in the average number of bids/tenders competing for bus and minibus interregional routes” will be deleted due to the cancellation of e-Transport activity. 12. The intermediate results indicator “Increase the share of total number of cases processed by the Ethics Commission and which will be analyzed based on the risk indicators/Red Flags” will be deleted. The envisaged Anti- Corruption Body is yet to be established and its assignment of functions, responsibilities, rights, and operations are to be defined by a special Law. As of now, it is not clear whether this body will have its own investigation unit and the key responsibilities going forward until the new Law (referred to above) will be adopted. 13. Likewise, with the proposed extension, the intermediate target values for some intermediate results indicators (such as those related to police dispatch time, pre-trial proceedings, training of trainers) will now be recalibrated to reflect delays in implementation. Moreover, the date for achieving the final target value for all results indicators will be set for November 30, 2022, in line with the proposed new closing date. Loan Closing Date 14. The loan closing date is proposed to be extended by 23 months to November 30, 2022. This is necessary to facilitate implementation and completion of activities critical to the achievement of the PDO. Moreover, the extension would allow the project to increase its relevance to the Government Program by allowing PSMP-3 to accommodate priorities of the new Government with respect to utilizing GovTech in enhancing the Government’s service delivery capacity as well as its anti-corruption agenda. Reallocation Between Disbursement Categories 15. The restructuring also proposes the adoption of a single disbursement category to allow for flexibility in financing activities under the project including new priorities of the Government. To date, there are no disbursements under the expenditure category intended to finance the GFMIS. Overall Risk Rating The World Bank Public Sector Modernization Project III (P149913) 16. There is no change in the overall risk rating of Substantial. However, the fiduciary risk is proposed to be raised to Substantial given the need for the institutional arrangements to stabilize. Institutional Arrangements 17. On May 20, 2019, the project was restructured to establish the PID within MOF as the new unit performing the fiduciary functions following the abolition of the FFPMC on April 1, 2019. Recently, however, the Government made a decision to move all fiduciary functions of foreign-assisted projects to the beneficiary agencies. In this regard, the PMG assumed the fiduciary functions for the project and is now under the DPM’s office. Accordingly, the restructuring proposes to update the institutional arrangements under the project consistent with the Government’s system-wide approach to project management of foreign-assisted projects. Implementation Schedule 18. In line with the extension and recognizing the delays in critical activities, the implementation schedule of the project will also be revised. Disbursement Estimates 19. The project’s disbursement estimates are also updated to reflect the extension and the delays in implementing key activities. Other Changes 20. All references to the CSC will be replaced with the CSO to reflect the correct legal reference to the beneficiary entity under the Project. The CSO was duly established and operating pursuant to the requirements of the RA Law HO-205-N of March 23, 2018 "On Civil Service" and Decision N 973 of July 17, 2018 of the RA Prime Minister “On approving Statute of the Civil Service Office of the Office of the RA Prime Minister”. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. I. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Institutional Arrangements ✔ The World Bank Public Sector Modernization Project III (P149913) Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-85390 Effective 31-Dec-2020 30-Nov-2022 30-Mar-2023 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-85390-001 | Currency: USD The World Bank Public Sector Modernization Project III (P149913) iLap Category Sequence No: 1 Current Expenditure Category: GD,Non-CS,CS,TR,IOC for P.1.1(a), 1.2, 2, 3, and 4 14,663,500.00 2,522,987.06 20,947,500.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: intentionally left blank 6,284,000.00 0.00 0.00 100.00 0 Total 20,947,500.00 2,522,987.06 20,947,500.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2016 52,500.00 0.00 2017 300,000.00 300,000.00 2018 2,600,000.00 1,137,550.00 2019 6,700,000.00 2,000,000.00 2020 7,150,000.00 7,000,000.00 2021 4,197,500.00 7,000,000.00 2022 0.00 3,862,450.00 OPS_DETAILEDCHANGES_SORT_TABLE SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance  Substantial  Substantial Macroeconomic  Moderate  Moderate Sector Strategies and Policies  Moderate  Moderate Technical Design of Project or Program  Substantial  Substantial Institutional Capacity for Implementation and  Substantial  Substantial Sustainability Fiduciary  Moderate  Substantial The World Bank Public Sector Modernization Project III (P149913) Environment and Social  Low  Low Stakeholders  Moderate  Moderate Other Overall  Substantial  Substantial . The World Bank Public Sector Modernization Project III (P149913) . Results framework COUNTRY: Armenia Public Sector Modernization Project III Project Development Objectives(s) The project development objective (PDO) is to improve quality of the public financial reporting and to improve access to selected enhanced e-government services. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 Improve quality of the public financial reporting. Three selected Three selected Financial reports public public for two selected administration Preparatory work administration pilot sectors are entities that are Work is Work is for two selected entities that are in prepared annually in charge of underway to underway to public charge of sectors but do not include sectors develop a develop a administration amounting to 10 Improved quality of all information on amounting to 10 methodology for methodology for entities to percent of the annual financial revenue, percent of the preparing preparing prepare state budget reporting (Text) expenditure, state budget consolidated consolidated substantially expenditures, financial assets expenditures, financial financial APSAS compliant prepare and liabilities, prepare statements. statements. financial substantially guarantees and substantially statements. APSAS compliant long-term APSAS compliant financial obligations. financial statements. statements. Action: This indicator Rationale: has been Revised To reflect what could realistically be achieved at exit. The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 Improve access to selected enhanced e-government services. Average processing time for public services (hours)(Comment: Reduced time for processing a passport 500.00 350.00 48.00 48.00 48.00 48.00 extension request by the Consular Department of the Ministry of Foreign Affairs. (Hours) Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised Increased access to consular services for issuing citizenship, civil status certificates and statements on any 0.00 0.00 0.00 0.00 5,000.00 7,000.00 10,000.00 10,000.00 10,000.00 existing criminal records (data disaggregated by gender) (Number) Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised The World Bank Public Sector Modernization Project III (P149913) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 Public Financial Management Information Systems APSAS compliant APSAS compliant Financial Financial statements for statements for three selected three selected APSAS has been public The accounting public adopted by the Establish administration Establish preconditions framework administration National Assembly preconditions entities are required for enables entities are on June 21, 2014, required for prepared on an consolidation of the preparation of prepared on an but has not yet consolidation of annual basis and financial statements the consolidated annual basis and been applied by the financial include (Text) financial include substantial public sector statements. substantial statements. information on organizations. information on assets and assets and liabilities, income liabilities, income and expenses, and and expenses, net assets. and net assets. Rationale: Action: This indicator To reflect what can realistically be achieved at exit as well as the gradual adoption of APSAS-compliant consolidated financial statements. The baseline information has been Revised was also revised to reflect that the law on APSAS was already in place at the start of the Project. e-Governance Solutions for Improved Service Delivery Reduced time for System procured, System System to be System to be System to be System under police dispatch in 15-20 minutes implemented productive and 5 minutes 5 minutes developed. developed. developed. procurement. emergency situations and tested. time for dispatch The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 (in at least two reduced to 10 selected pilot minutes. regions/marzes). (Text) Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised Increased share of 12% of all users 16% of all users 20% of all users citizens (disaggregated of specific public of specific public of specific public 20% of all users of by gender) providing Feedback services provide services provide provide specific public No feedback No feedback No feedback No feedback voluntary feedback on mechanism voluntary voluntary voluntary provide voluntary mechanism in mechanism in mechanism in mechanism in specific public services under feedback on feedback on feedback on feedback on place. place. place. place. (percentage - data procurement. selected public selected public specific public specific public generated from services. services. services. services. system) (Text) Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised An Interdepartment Reduced time to al Working transmit Group was set up Case CMS is in place; information/messages One week by One week by An An in accordance Management transmittal Immediate relevant for the pre- special express special express Interdepartment Interdepartment Full rollout of the with the Prime System (CMS) immediate (electronic trial proceedings mail (send via post mail (send via al Working al Working Group CMS. Minister's Decree under (electronic transmission). between prosecutors’ office). post office). Group operates. operates. 30-665-A of June procurement. transmission). offices in different 2017 to design regions. (Text) the technical task of the digital pre- The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 trial case management system. Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised Increase in the average number of bids/tenders 1.10 1.30 1.50 1.50 competing for bus and minibus interregional routes. (Number) Action: This indicator Rationale: has been Marked for This indicator is being dropped following the cancellation of the e-Transport activity. Deletion Increase the share of total number of cases processed by the Ethics Commission and which 0.00 20.00 50.00 70.00 100.00 100.00 will be analyzed based on the risk indicators/Red Flags (Percentage) Action: This indicator has been Marked for Deletion Increased gender- No gender No gender No gender No gender Gender Gender Gender Gender Gender disaggregated data is disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 available on the use of data available in data available in data available in data available in data on e- data on e- data on e- data on e- data on e-services e-services which are line ministries / line line line services is services is services is services is is available to provided by selected agencies which ministries/agenci ministries/agenci ministries/agenci available for the available for the available to available to ministry of foreign agencies (Text) will provide e- es which will es which will es which will ministry of ministry of ministry of ministry of affairs; services. provide e- provide e- provide e- foreign affairs. foreign affairs. foreign affairs; foreign affairs; Prosecutor’s services. services. services. Anti-Corruption Prosecutor’s Department; Body; Police. Department; Ethics Anti-Corruption Commission; Body; Police. Police Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised Reduced time to issue the certificate of civil status by the Consular 60.00 10.00 10.00 10.00 10.00 10.00 Department of the Ministry of Foreign Affairs (Days) Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised Capacity Building and Small Capacity Building Interventions Number of Armenian Academy of Public Administration (AAPA) 0.00 0.00 0.00 0.00 0.00 20.00 40.00 50.00 50.00 ToTs through proposed twinning The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 arrangements/collabor ations with selected international public schools. (Number) Rationale: Action: This indicator Adding intermediate targets to reflect the new closing date of November 30, 2022. has been Revised IO Table SPACE The World Bank Public Sector Modernization Project III (P149913)