The World Bank Forests and Community (P132846) REPORT NO.: RES47247 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF FORESTS AND COMMUNITY APPROVED ON APRIL 7, 2015 TO ARGENTINE REPUBLIC ENVIRONMENT, NATURAL RESOURCES & THE BLUE ECONOMY LATIN AMERICA AND CARIBBEAN Regional Vice President: Carlos Felipe Jaramillo Country Director: Jordan Z. Schwartz Regional Director: Anna Wellenstein Practice Manager/Manager: Valerie Hickey Task Team Leader(s): Pablo Francisco Herrera The World Bank Forests and Community (P132846) ABBREVIATIONS AND ACRONYMS MAyDS Ministry of Environment and Sustainable Development (Ministerio de Ambiente y Desarrollo Sostenible) PDO Project Development Objective PIC Integrated Community Plan (Plan Integral Comunitario) PIU Project Implementation Unit SACVeFor Forest Administration, Control and Verification System (Sistema de Administración, Control y Verificación Forestal) US$ US Dollar WB World Bank The World Bank Forests and Community (P132846) BASIC DATA Product Information Project ID Financing Instrument P132846 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 07-Apr-2015 31-Jul-2021 Organizations Borrower Responsible Agency Ministry of Environment and Sustainable Development Argentine Republic (MAyDS) Project Development Objective (PDO) Original PDO Project Development Objective (from Project Appraisal Document) The Project Development Objective is to improve forest management; and increase access to markets and basic services by small forest producers including indigenous and campesinos in selected Northern Provinces of Argentina OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-84930 07-Apr-2015 21-Sep-2015 13-Nov-2015 31-Jul-2021 20.76 17.47 3.29 The World Bank Forests and Community (P132846) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Background & Status of Implementation 1. This Restructuring Paper seeks the Country Director’s approval for a Level-2 restructuring of Forest and Community Project. The purpose of the proposed restructuring is to (i) extend the closing date; (ii) adjust the disbursement schedule; and (iii) reallocate disbursement categories. 2. The Forest and Community Project was declared effective in late 2015. Its Project Development Objective (PDO) is to improve forest management; and increase access to markets and basic services by small forest producers including indigenous and campesinos in selected Northern Provinces of Argentina. The PDO remains highly relevant, particularly considering the current country and sectorial context. 3. During its first years of implementation the progress achieved by the Project was less than originally expected. The mid-term review conducted in 2018 confirmed that the PDO indicators’ targets set during preparation were largely out of reach. That led to a substantial Project restructuring in 2019, which included a partial cancellation of 65 percent of the original loan amount. 4. After the first Project restructuring, implementation performance gradually improved. Among others, the Project achieved the following results: (i) a Deforestation Early Warning System was developed and became operational; (ii) the Second National Forest Inventory was developed and disclosed; (iii) more than 2,400 indigenous and peasant households benefitted from the development of 76 Integrated Community Plans (PICs) approved by the respective Provincial Law Enforcement Authorities, which led to community investments and enable them to access additional resources and technical support from the National Forest Law (#26,331); and (iv) 985 households have improved their access to water for domestic consumption through the construction of 40 rainwater harvesting roofs. 5. The progress towards the PDO achieved so far can be summarized as follows: a) PDO indicator 1: 4,300 inhabitants of forest and adjacent communities have reported higher monetary and non- monetary benefits from forests (which represents 41 percent of the final target). b) PDO Indicator 2: 361,298 hectares of forests have been put under management plans (86 percent of the final target). The World Bank Forests and Community (P132846) c) PDO indicator 3: 14 percent of beneficiary households have reported improvements in access to basic services (28 percent of the final target). d) PDO indicator 4: 417 small forest producers have reported improvements in access to markets (69.5 percent of the final target). 6. Steady progress has been recorded in the last two years, in aspects such as the procurement of works, goods and services to implement the Integrated Community Plans (PICs). The Project has not experienced any procurement or financial management issues recently. The PIU managed to adapt its procedures to overcome issues with the physical submission of bids and other documentation required for procurement processes. Contracts for a total of US$3.5 million were granted to firms and individuals since November 2020, representing 16.8 percent of the Project loan after the above- mentioned partial cancelation. There are no pending audit reports and those submitted to the World Bank (WB) have been deemed satisfactory. Compliance with individual environmental and social safeguards policies is either satisfactory or moderately satisfactory, and different actions have been taken by the PIU to gradually improve its performance addressing outstanding issues. 7. However, the lockdown measures taken at the national level as a result of the COVID-19 pandemic, have caused delays in the implementation of most Project activities. Once the COVID-19 outbreak started, field activities slowed down considerably due to the imposed mobility restrictions, and to the impossibility to access some of the project sites and to gather rural communities. 8. As a result, in late 2020 a project closing date extension was granted and considering the uncertainties and impacts of the COVID-19 pandemic, a phased approach was followed. A first 8-month extension was first granted until July 31, 2021 to allow for the execution of the investments that were already committed under contracts. Meanwhile, both the contextual conditions enabling the Project development objectives to be met, and the progress in the achievement of key milestones1 that were agreed upon between the Borrower and the WB, and deemed necessary to ensure the achievement of some expected Project results under acceptable risks levels, would be monitored before considering a further extension. Such key milestones have been partially achieved by the PIU: The Santiago del Estero Province has adopted SACVEFOR and registered transported timber in such system for the first time and the construction of shallow wells in selected indigenous communities from the Salta Province is underway (bidding process has been launched). 1 Meeting the referred milestones meant that no later than March 31, 2021 the volume of timber transported in the Santiago del Estero Province would be registered in the Forest Administration, Control and Verification System (SACVEFOR); and that no later than June 30, 2021 the construction of shallow wells in selected indigenous communities from the Salta Province (where the investments had been on hold for a long while) would be completed. Possible intermediate steps to achieve those two key milestones were also identified. The World Bank Forests and Community (P132846) 9. Project Implementation is deemed moderately satisfactory. However, given the current pandemic context and its related accumulated delays, some of the pending Project investments cannot be completed and the PDO cannot be fully achieved by the current closing date (July 31, 2021). To date, the Project has disbursed US$17.47 million (representing about 84% of the total commitment). About 85 percent of the loan amount remaining after the partial cancelation has been spent or is committed against signed contracts, and around 15 percent of the proceeds is still available. The devaluation of the Argentine peso since 2018 contributed to additional savings and divergences from the projected loan disbursements. 10. Investments required to fully achieve the PDO are still pending. Such investments are under different stages. Some of them are under implementation (e.g. the construction of water works that are expected to contribute to PDO indicator 3; the training to Chaco province technicians, to build their capacities to develop PICs on their own, which would contribute to PDO indicator 2; among others). In some cases, the procurement processes have been publicly launched and the offers received by the PIU are under review (e.g. the construction of cattle management infrastructure, which would contribute to PDO indicator 1; among others). In some cases, the procurement processes have not been initiated, and the technical specifications have not been developed, yet (e.g. construction and purchase of works and goods to improve water availability for cattle production, that are expected to contribute to PDO indicators 1 and 3). Additionally, in the case of some investments that would be conducted through agreements with public rural development agencies (e.g. trainings to support improved access to markets from small forest producers; which would contribute to PDO indicator 4), the signature of the required contracts has been put on hold due to the COVID-19 pandemic, which has impeded the implementation of activities involving gatherings during the first semester of 2021. These pending procurement processes and contracts will be completed before the proposed extended closing date. 11. Previous project restructurings. The project had two previous restructurings. The first one, dated July 24, 2019, involved a streamlining of Project design to refocus implementation on the achievement of results together with a US$38 million partial cancellation of the original loan amount. The second one, dated November 24, 2020, extended the Project closing date for the first time for 8-months as described above, and revised the allocation of funds among disbursement categories. 12. Overall risk to the achievement of the development objective is considered Substantial and has not changed since the previous assessment. B. Rationale for Restructuring 13. On July 22, 2021 the Government of Argentina (GoA) submitted a letter to the World Bank (WB) requesting the extension of the Project closing date until May 31, 2022 and a new reallocation of funds among disbursement categories. Such request reflects willingness to continue the Project implementation under current circumstances, and includes a revised 10-month operational plan for the execution of activities which might allow the Project to achieve its PDO. The cummulative extension from the original closing date, established in the Loan Agreement, would be 18 months. The World Bank Forests and Community (P132846) 14. Despite the still on-going COVID-19 pandemic, conditions are expected to be manageable enough to enable the completion of the Project within the requested additional short timeframe, should a second closing date extension be granted. After initial delays and high uncertainty, the PIU has managed to partially adapt the Project implementation to the pandemic context coping with the imposed mobility and gathering restrictions by embracing strict sanitary protocols. As the national COVID-19 vaccination programs are unfold, the contextual risks would decrease creating more enabling conditions for Project implementation. 15. Additionally, the key milestones to be monitored have been partially achieved by the PIU. The Santiago del Estero Province has adopted SACVEFOR and registered transported timber in such system for the first time. The construction of shallow wells in selected indigenous communities from the Salta Province has not been completed, yet, but is underway. On June 25, 2021 the Ministry of Environment and Sustainable Development (MAyDS) has launched a bidding process for the construction of such water wells, expecting to grant the contract in August 2021 and to complete the works by November 2021. 16. The proposed Project restructuring does not entail any changes to: (i) the PDO, scope or nature of project activities, (ii) the safeguards category or policies triggered, or (iii) the implementation arrangements. 17. The restructuring complies with the requirements of the WB’s Operational Policy OP/BP 10.00 on Investment Project Financing as (a) the PDO continues to be achievable; (b) the WB and the Recipient agree on actions that will be undertaken by the Recipient to improve Project performance and achieve the PDO; and (c) neither the loan in particular, nor the country (Argentina) in general, is subject to an ongoing suspension of disbursements. II. DESCRIPTION OF PROPOSED CHANGES 18. The changes introduced by the proposed restructuring include: (i) extension of closing date; (ii) adjustment of disbursement schedule; and (iii) a reallocation among disbursement categories. 19. Extension of the Closing Date. The Project closing date would be extended from July 31, 2021, to May 31, 2022. This 10-month additional period would allow the completion of the on-going and planned contracts and the fulfillment of the Project’s monitoring, evaluation and safeguards-related requirements. 20. Change in Disbursement Estimates and Implementation Schedule. The Disbursement Estimates are being updated based on a planning conducted by the PIU for the remaining implementation period, aiming at full Loan disbursement. However, due to the high fluctuation in the exchange rate of the Argentine Peso, there is a high level of uncertainty behind such projections. The timeframe to achieve the results indicators’ targets that have not been achieved yet will be updated to reflect the new implementation schedule. The World Bank Forests and Community (P132846) 21. Reallocation among Disbursement Categories. Funds will be reallocated to two disbursement categories. The “Goods” Category (No: 2), would be increased by US$1,040,939, for the procurement of goods (such as fences) for cattle management in communal forests from the provinces of Chaco, Salta and Santiago del Estero, which would lead to increased monetary or non-monetary benefits from forests for such communities (PDO indicator 1). The “Consulting Services” Category (No: 3) would be increased by US$30,472 to cope with the projected salary increases for the PIU staff, and with the costs of additional staff incorporated to the PIU to conduct trainings on beekeeping (which are expected to lead to increased monetary or non-monetary benefits from forests for indigenous peoples and campesinos (PDO indicator 1); and to improvements in their access to markets (PDO indicator 4). 22. Accordingly, the following three disbursement categories will have a reduced allocation. The “Works” Category (No: 1) would be reduced by US$847,201 to factor-in the adjustments to the costs of contracts under implementation caused by the fluctuation of the exchange rate between the Argentine Peso (AR$) and the US Dollar (US$), and the updated costs estimates for some water works to be conducted in Santiago del Estero. The “Training” Category (No: 5) and the and “Operating Costs” Category (No: 7) will be reduced by US$156,925 and US$67,285, respectively, considering the changes in the operational plan prepared by the PIU to achieve the PDO during the extended period of time. III. SUMMARY OF CHANGES Changed Not Changed Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ The World Bank Forests and Community (P132846) Financial Management ✔ Procurement ✔ Implementation Schedule ✔ 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-84930 Effective 30-Nov-2020 31-Jul-2021 31-May-2022 30-Sep-2022 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-84930-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: WORKS 6,166,649.00 2,812,151.11 5,319,448.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GOODS 4,851,107.00 3,532,552.66 5,892,046.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: CONSULTING SERVICES The World Bank Forests and Community (P132846) 3,192,417.00 3,031,135.72 3,222,889.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: NON-CONSULTING SERVICES 2,775,565.00 2,695,564.94 2,775,565.00 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: TRAINING 2,352,443.00 2,079,581.40 2,195,518.00 100.00 100.00 iLap Category Sequence No: 6 Current Expenditure Category: INTENTIONALLY LEFT BLANK 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 7 Current Expenditure Category: OPERATING COSTS 1,274,919.00 1,175,217.59 1,207,634.00 100.00 100.00 iLap Category Sequence No: 9 Current Expenditure Category: INTEREST RATE CAP/COLLAR PREMIUM 0.00 0.00 0.00 Total 20,613,100.00 15,326,203.42 20,613,100.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2015 0.00 0.00 2016 2,868,859.19 2,868,859.19 2017 2,584,445.83 2,584,445.83 2018 2,493,075.56 2,493,075.56 2019 3,035,573.12 3,035,573.12 2020 1,113,501.14 1,113,501.14 The World Bank Forests and Community (P132846) 2021 7,311,626.63 4,328,887.75 2022 1,352,918.53 4,188,757.41 .