58013 Joint Country Portfolio Performance Review November 20 I 0, Minsk Republic of Belarus International Bank for Reconstruction and Development JOINT COUNTRY PORTFOLIO PERFORMANCE REVIEW November 2010, Minsk Joint Country Portfolio Performance Review November 20 I O. Minsk 1. Portfolio Size and Composition 1.1 Country Assistance Strategy for FY08-11. The Belarus FY08-11 CAS foresaw lending of USD 100 million per annum in ne w commitments. The CAS defined a selective World Bank Group program built on priorities from Belarus' medium-term development agenda, the Program of Social and Economic Development for 2006-10, and comprised two pillars: Delivering Global Goods and Facing Transition and Shocks through Competitiveness and Inclusion . Analytic and advisory activities (AAA) were a core element to support both pillars with modest levels of investment lending to buttress the Government's public investment program in improving e nergy efficiency, water supply quality, waste management, and infrastructure in Chernobyl-affected areas under the umbrella of the Glohal Goods pillar. Originally, no development policy lending was envisioned. In the wake of the crisis and in recognition of a sustained process of reform and economic opening since late 2007, the CAS Progress Report has increased lending during the final two years of the CAS to USD 250 million per annum and deepened engagement with Belarus through a Development Policy Loan (DPL). 1.2 IBRD total allocation to Belarus. Since the first lending operation in FY93 , the World Bank financed nine operations with a total commitment of US $715.3 million, of which six were investment operations, one rehabilitation loan, one TA loan, and I development policy operation. 1.3 Portfolio Composition. The largest shares of the portfolio are in infrastructure sectors. List of all IBRD financed projects is given in the Annex I. Figure I: Lending structure (1993 - 2010) by sectors ... _-\ Commitments, % I II Public Administration, Law, and Justice - 6% 13% II Finance, Banking - 6% '!ill Industry and trade - 28% II Agriculture, fishing, and forestry - 3% iii Energy and mining - 35% mf Health - 9% % Water, sanitation and flood protection - 13% .... J Source: WB Business Warehouse, 2010 1.4 Active Portfolio: As of November I, 20 10 the active portfolio of Bank-supported projects consists of 5 investment lending operations and one Global Environment Facility (GEF) grant project, with commitments totaling US$350.6 million', of which about 77 percent remain to be disbursed. The Integrated Solid Waste Management Project (US$42.5 million) was declared effective on October I Based on the commitment US$ amount as ret1ected in financing agreements . -2- Joint Country Portfolio Performance Review November 20 I0, Minsk 6, 20 I o. The Loan Agreement for the Additional Financing for the Post-Chernobyl Recovery project (US$30 million) was signed on October II, and effectiveness deadline is January 10,2011. I.S Pipeline projects. There is currently one investment project in the pipeline: Road Modernization and Upgrade (US$ISO million, recently negotiated). DPL-I (first in a programmatic series) can also be delivered in FY II. Table 1: Belarus - Active Portfolio of IBRD-supported Operations (as of October 27, 2010) Undisbursed Total Committed Project Disbursed Project name balance disbursement (US$ mIn) age (%) (US$ min) (US$mln) Social Infrastructure 30 i 5,1 32,5 i 9,4 86,4 i Retrofitting I Post-Chernobyl 25.7 39.8 40.2 ' 4.5 50.2 Recovery .. Water Supply and 7.9 54.1 5.9 i 2.0 9.9 Sanitation i Energy Efficiency 0.0 124.7 0.3 1.4 0.3 . POPs Stockpile 0.0 5.5 0.0 0.3 0.0 : Management . Integrated Solid 0.0 42.4 0.1 0.3 0.3 Waste Management TotaVA verage 4,1 271~6 79,0 3,0 22.5% Source: WB Business Warehouse, 2010 1.6 Analytical and Advisory Activities (AAA): AAA has been selective but a number of key reports have been prepared under the present CAS and helped to shape the dialogue with the authorities. In 20 I 0, the Bank delivered a series of Economic Policy Notes to update the 200S Country Economic Memorandum. Background materials and discussions for these notes have informed the preparation of the DPL. The PEFA was completed in FY09 and served to underpin the DPL through measures to streaml ine tax and control systems and increase the transparency of state support. The FSAP Update and Auditing and Accounting ROSC also contributed to the policy and reform dialogue. Their recommendations have been reflected in the DPL as well as in the IMP's SBA. The recently completed Transport Sector Policy Note will serve as an analytical underpinning for the future engagement of the Bank in the transport sector. The AAA program will continue to be instrumental in building the dialogue with the government in important policy reform areas. The Country Economic Memorandum and Public Expenditure Review will be the key analytical products in FYI I. Additionally, the Bank will continue to be engaged in technical assistance to help improve the targeting of social assistance programs and ensure pension system sustainability in Belarus. Technical assistance on privatization will be another key product in FYIl. Following on the dialogue with the government started in 2009, the T A will step up assistance to support the Belarus 2 The disbursement ratio is an indicator of effective project management. It is calculated as the ratio of disbursements during the fiscal year to the undisbursed balance at the beginning of the fiscal year. Only investment operations are included. -3- Joint Country Portfolio Performance Review November 20 I0, Minsk privatization program. 2. Portfolio Performance 2.1 Portfolio Age: On average Belarus portfolio's age of 3 years is relatively young being below ECA average of 4 years. It is due to two projects being less than I year old. The average portfolio age will further decrease with the closure of the Social Infrastructure Retrofitting project at the end of 2010. This project is the oldest in the portfolio (9.4 years). 2.2 Closing Date Management: There are no over-aged projects} in the portfolio. Annex 1 including all projects approved since 1993 shows that four projects were extended. There were two extensions of the Social Infrastructure Retrofitting project; the last extension was due to the additional financing requested by the Government. The Post Chernobyl Recovery project initially planned to be closed at the end of December 20 I0 has been extended for 3 years to enable utilization of additional loan of US$30 million. 2.3 Disbursements: The disbursement performance is presented in Table I. The disbursement ratio was 25.8 percent in FY09, but dropped to 10.6 percent in FYIO and 3.4 percent at the end of QI of FYII (July-September, 2010). This reflects the entry of three new investment projects in the portfolio as well as several systemic problems that are outlined on page 7. 2.4 Financial Management: Financial management (FM) arrangements in the active projects are acceptable. The PM risk rating for all projects has been Satisfactory (S)lModerately Satisfactory (MS) in the last years of implementation. Based on the most recent supervisions dated September 20 I 0, FM ratings of the Social Infrastructure Retrofitting and Post Chernobyl Recovery projects were MS, mainly due to some deficiencies in the disbursement documentation and disbursement procedures. PM rating of the Water Supply and Sanitation project has been recently upgraded to S, as the automated accounting system is now fully functional and qualified financial staff is now available. All other projects have Satisfactory FM risk rating. Accounting and reporting in all projects is now done in automated accounting and reporting systems. Periodic reports (PMRs/IFRs) are submitted on time and have been confirmed acceptable. While the audit reports were submitted with a slight delay in previous years, 2009 audits were submitted on time, and none of the audit reports was qualified. Auditors' management letters did not note any significant deficiencies in the internal controls and procedures of the implementing entities. Other problems noted during the previous supervisions were delays of payment of project co-financing and delays in recording of such payments. However, these problems have been addressed, and currently transactions related to payment and recording of co-financing are generally done on time. 2.5 Procurement: Procurement under the project is being performed by Project Management Units (PMUs) with different experience and level of expertise. However, in general, procurement under the projects is satisfactory, limited capacity of procurement departments of the PMUs leads sometime to certain deviations from the applicable procurement Guidelines and procedures. PMUs' staff turnover aggravates the situation and eventually causes delays in implementation of projects. 2.6 Effectiveness Delay: There are currently no projects in the portfolio flagged for effectiveness 3 Over-aged projects are defined as projects with durations of 8 years or more since approval; II years in the case of additional financing. -4- Joint Country Portfolio Performance Review November 20 I O. Minsk delay4. However, Water Supply and Sanitation and Energy Efficiency projects experienced minor effectiveness lags, from 23 days to one month. 2.7 Portfolio Risk Assessment: Currently there are neither actual problem projects nor potential problem projects in the portfolio. One project (Energy Efficiency) has moderately satisfactory rating for Implementation performance. 3. Main Findings and Monitorable Actions 3.1 This is the first Joint Country Portfolio Review (JCPR) conducted by the IDRD and the Government of Belarus. The objective of the JCPR is to assess the performance of the country portfolio, identify positive and negative factors affecting the portfolio performance, and agree on actions for its improvement. This review covers the period from 1992 to November 20 lO. 3.2 The process of the joint portfolio review involved consultations with all PMUs and counterpart ministries. The PMUs participated in a mini-survey providing their feedback on various aspects of project preparation/implementation. The analysis of PIUs' responses revealed (i) a demand for the monitoring and evaluation training to develop counterparts' capacity in the design and implementation of monitoring and evaluation systems; and (ii) concerns regarding the Bank's policies of hiring state-owned enterprises under Bank-supported projects. 3.3 The parties discussed the issue of the conflict of interest in procurement under the Water Supply and Sanitation Project. There are many state-owned companies in the local construction market set up by oblast executive committees and administratively dependent on them. They possess sufficient material and human potential to implement sizable civil works contracts. However, oblast executive committees are beneficiaries of sub-projects, and a possible conflict of interest does not allow participation of these companies in bidding for contracts under Bank-financed contracts. The Government indicated that foreign contractors sometime come to bidding with insufficient qualification or resources. The Belarus side requested the Bank to consider the possibility of removing this constraint as, in their opinion, participation of such companies in bidding provides for a required level of transparency and efficiency. The Bank's team noted that according to the Bank's procurement rules, government-owned organizations can participate in Bank-financed projects if they demonstrate that they are legally and financially autonomous, operate under commercial law and are not dependent agencies of the Borrower or Sub-Borrower. These rules are the same for all countries where the Bank operates. In cases where the Government believes that state-owned enterprises meet the eligibility criteria mentioned above, the procurement lawyers of the Bank will be available to review any particular case in detail. In addition mitigation measures such as those taken under the Road Upgrade and Modernization project may allow state-owned enterprises to be eligible under Bank rules. 3.4 The parties agreed that Negotiations and Effectiveness delays are caused by: • government processing for the Credit and Currency Committee of the Council of Ministers (CCC) starts at or after the project appraisal; -+Elapsed time between a Board approval date and an effectiveness date of more than nine months for investment, more than six months for policy-based lending and more than three months for emergency operations. -5- loint Country Portfolio Performance Review November 20 I0, Minsk • delays between the CCC project endorsement and submission of the project to the Presidential Administration; • authorization to negotiate requires a Presidential Decree which takes minimum 3 months; • effectiveness requires a Presidential Decree which takes minimum 3 months. 3.5 The growing delays in project start up and implementation, which lead to slowed down disbursement, generate concerns in the IBRD and the Government. The following generic factors have been identified as slowing disbursement and eroding project benefits: • inadequate procurement readiness for implementation (outdated designs, feasibility studies and cost estimates); • hence, unexpected need for land acquisition during implementation; • inadequate implementation readiness such as hiring of key staff are delayed until after effectiveness; • weak client ownership/no clear distribution of responsibilities between central and local authorities at preparation stage; • eroded procurement capacity within Prus due to staff rotation and therefore inadequate procurement documentation; • PIU staff turnover due to low remuneration rates; • long review of procurement documents/decisions due to involvement of several government authorities; • delayed co-financing. 3.6 The Government and the IBRD participants identified the monitorable actions, which need to be followed up: The IBRD: • commits to respecting its service standards in procurement, financial management and safeguards, and requests the Government to provide feedback on the Bank meeting these standards; • take stock of project implementation and procurement capacity at pre-appraisal and identify steps to mitigate any lack of Borrower capacity; • arrange training of Borrower staff in early stages of project preparation: o procurement guidelines and procedures with particular attention to eligibility criteria for participation of state-own enterprises in competition for Bank-financed contracts o Bank safeguards policies including but not limited to Environmental Impact Assessment and Involuntary Resettlement o monitoring and evaluation of project results o operational risk assessment framework • support the Borrower in early start of the procurement process prior to effectiveness so that to build the capacity of the Borrower and expedite project implementation. The Government: • begin the procedure of project processing and endorsement earlier so as to proceed more rapidly to negotiations of the Legal Agreements and meet the Board dates; • begin to prepare feasibility studies, designs, and bidding documents before effectiveness; • focus managerial attention on resolving implementation issues to accelerate disbursement. -6- Joint Country Portfolio Perfonnance Review November 2010, Minsk 3.7 The IBRD and the Government will explore ways to align project cycle processes and procedures on both sides to ensure high project readiness for implementation by effectiveness. 3.8 The IBRD and the Government will arrange on a regular basis joint meetings to discuss project implementation progress and any disbursement impediments. 3.9 Next review. The Government and the IBRD agreed to conduct the next fonnal portfolio review in May 2011. Signed in Minsk on November 19,2010 REPUBLIC OF BELARUS INTERNATIONAL BANK FOR D DEVELOPMENT Nikolai G. Snopkov Ivan Velev Minister of Economy World Bank Resident Representative of the Republic of Belarus in Belarus -7- Joint Country Portfolio Perfonnance Review November 20 I0, Minsk Annex 1 List of IBRD-financed projects in Belarus (1992 - 2011) f-I---.----.-~-·---·~··----T·--·--·:--T·--·--·----r---·---·--·I--·----·--T------·--·I·-~-·' i I I I r! . t ,roJec name jConwutment!s" IA t moun!D i Ignmg 0 fLAIF.- i- 'D uecti veness.10ngma •• I lCl . D IReVlS CI' I'. · ed D te I lcIosed t I 1,- i;~;;;,u'ion f ~~; ;;~~3! -,:~~~,-~:ei uilding V,;n .. rS$ m1·)8t·:~ 311993 .+.- B :-~. ·t- - - - - - - . - . . . . -·--~-t--·· -.- I:',: 19: _.L __ .._._.~ __. L . ~··-I t ···----1 I 1-·· . - - - . -.- .... . - . - -..- ..- 12 iReh,bilitotion Lo,n 120.0 121201l9931'1241l99416130Il995[' 1/ 1/ 1996 1 ' j I I 1··--1--:---·------------· .+ .-.. - .....-.. 13 [Forestry Development I 41.9 8/2511994 I 1/2611995 I 3/3112000 14/3012002 x - - - - - j ... ---~---r···-····--···-·-··+-·-····----·-+-· ·--··--i 14 ISOCIaI I~frastructure I 22.6 9/261200 1 I 12/261200 I '12/3112006 12/3112010 I I 0 6;;;;~~~;;~;;;"";T ,;;; I i;t~,~; ~;;'den' ---------------------- [----!-.-----.-- y - ------ '25. ;;~,~ II ;;:3;-;;~;~ ------ j --------r--------t------· 19 ,Integrated Solid Waste I 42.5 I7/512010 10/612010 1213012016 12/3012016 I !I~ l~e~~~::6~~~lopme~t I -- ~~·o.o! 121312009 1 '2:'612009 - 61l 120 10 16I~ 12~1O--1 -- , -I I" l_ r;;':;~~;:;.:,~~;W";~I~-~-3~OI ~~~~all Result__ ___J .~.____ 715·1_ _ J ~-~~+'213'120 ~__ _!~ _1 101,,120 I __.__J _._______ 0 ~ J__.__ ~ ______j .-L.____ 13 Source: WB Business Warehouse, 2010 -8- Joint Country Portfolio Performance Review November 20 I 0, Minsk Annex 2 List of Trust Fund financed activities (1992 - 2011) Net Grant Funds Grant Sign Trost Fund Name Amount Disbursed Date Active Funds I IDF Grant for Enhancing Institutional and Legal j Framework for Environmental Permitting in Belarus I pr(jject .. 440,()()() >----- .. 396,49() 10122/20 I 0 -1» I; 1012212007 ; " GEF Integrated Solid Waste Management project i (between B,elarus andIBRD) i +,. 5,500,000 + ..., 0.00 9/30/2013 7/512010 ! ~ Total __________ active TF P!?rtfolio. 5,940,000 : 396,490 Closed GEF grants ; GEF I PDF C: Belarus ODS Phase-Out pr()ject 187,090 .. 187,090 8/3112000 : 6/5/1996 : ! Enabling activity related to the implementation of the : Stockholm Convention on Persist~!!tQrg.'l!!ic:X()!!.tJt~l1ts....I .. i , Grant for preparation of the Pops Stockpile Management I c and TechnicallInstitutional Capacit)'Upg!ading project '. J. 611/2010 Enabling Activity - Republic of Belarus: First National I Communication in Response to Commitments under the I , UNFCC j. 6/30/2003 8/512002 • Belarus ODS Phase-Out project j 8/3112000 5/1311 997 i Belarus Biodiversity project 1. 1,032,160 6/30/1997 j 9124/1992 I _Tot~!9EF __..____________..~_~ ___;_.10,1~~2~~,075,020 :._~_ ._.pos.ed !,.!!.~_ts_ _ __ . T ~.-.-------.-- ~ 2-Pilot Match,I]1a.~ingprolect ..... 368,). ?9. ~ . ",... • Private Enterprise Development 1,026,350 2/18/1994 Labor Market & Social Protection ..i . . 4~2,I 90 ...... 4°2,310; 6/30/1997 8/1711993 ! ;. Belarus PripYilt river PriorityJnfrastructure ,,432,750 395,520 5/31/1995 , 9/5/1994 ' , Belarus: TBIAIDS project 0.00 : , Energy Sector Rehabilitation project 2/1511995 ,,~.()C;iill~~c;t(j!.E:!!~gyEffi,c.it:!!cy, .----- _._. I '--t-'~ 111412000 . , First Urban Water proj~ct i 402,940 402,949 113112000: 10/25/1999; CCIG-Belarus: Social Infrastructure Retrofitting project _... t ,(]ifl1at~~~iI()t... .. "i " .... ' ... " , j' . .-I~~!.~~RD f~l!.din~___._~_______~_.._ ....._.._~I~_.'!.lJl,340 _:_Jt?66,Q!~_.___ ~._~~__~.____-.J -9 .. Joint Country Portfolio Performance Review November 20 I0, Minsk Grant [ Net Grant Funds Grant Sign Trust Fund Name Closing Amount : Disbursed Date Date _~Iosed IDF gran,!S_ _,_ _ _ _,_ _ _ _ __ I >~-,--------------. Grant for Strengthening the Policy Making and Analysis in the Ministry of Social Protection of Belarus 278,110 278,110 6122/2003 2/26/2002 I Grant for Belarus for Environmental Compliance and Enforcement Capacity Building in Belarus 368,880 368,880 5/612003 51712001 Legal Systems Reform 469,500 469,500 . 4/19/1998 : 11712000 ' , En!erprjse!bankj,!1g~s~cto~ 350.000 3:;(),000 4/21 1996~1~ 5/17/1993 : . Bllilding Institutio~naI Capacity_ 35,000 ~~"A~~ , __ , __ 35.000 I 2124/1996 : 212511994 -.' . Land registrationand cadastre system 195,000 195,000 6/16/1996 6/20/1994 : Str~ngtheningPublic Procllrement Syste l11 , ~ ~ 89,62Q., 89,620 5/3111996 : 6/9/1994 ~ Legal Systems Reform I 0.00 0.00 8/3/1995 1114/1994 j ~-.!.?tal 1,786,110 ' ID,!' fu~diI!L_ _._.______, ._ _ _L..h?86.,!1l9-L.'_"- -"~-'"' Source: WB Trust Fund portfolio reports, 2010 -10-