Document of The World Bank FOR OFFICIAL USE ONLY Report No: 76255-AF EMERGENCY PROJECT PAPER ON A PROPOSED ADDITIONAL GRANT AND PROJECT RESTRUCTURING IN THE AMOUNT OF SDR 8.3 MILLION (US$ 12.5 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR THE SAFETY NETS AND PENSIONS SUPPORT PROJECT May 29, 2013 Human Development Unit Afghanistan Country Management Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2013) Currency Unit = Afghani (AFN) AFN 50.00 = US$1 US$ 1.509 = SDR 1 FISCAL YEAR December 21 - December 20 ABBREVIATIONS AND ACRONYMS AF Additional Financing ASPP Afghanistan Social Protection Program ANDS Afghanistan National Development Strategy CBRF Capacity Building for Results Facility CCT Conditional Cash Transfer CDC Community Development Council DA Designated Account DoLSAMD Directorate of Labor, Social Affairs, Martyrs and Disabled FM Financial Management FP Facilitating Partner ICB International Competitive Bidding IFR Interim Financial Report MIS Management Information System MDPP Martyrs and Disabled Pension Program MoF Ministry of Finance MoLSAMD Ministry of Labor, Social Affairs, Martyrs & Disabled NCB National Competitive Bidding NGO Non-governmental Organization NRVA National Risk and Vulnerability Assessment ORAF Operations Risk Assessment Framework PCU Project Coordination Unit PDO Project Development Objectives PIP Project Implementation Plan PMT Proxy Means Test PSC Project Steering Committee PSPP Public Sector Pension Program PST Project Support Team SBD Standard Bidding Document SDR Special Drawing Rights TWGs Technical Working Groups Vice President: Isabel Guerrero Country Director: Robert J. Saum Sector Director: Jesko S. Hentschel Sector Manager: Pablo Gottret Task Team Leader: Afrah Alawi Al-Ahmadi AFGHANISTAN SAFETY NETS AND PENSIONS SUPPORT PROJECT ADDITIONAL FINANCING TABLE OF CONTENTS Data Sheet ............................................................ 4 I. Introduction .........................................................1 II. Project Background and Rationale for Additional Financing and Restructuring.. ..........1 III. Proposed Changes .................................................... 6 IV. Appraisal Summary ......................................... ......... 12 Annex 1: Results Framework and Monitoring.................................... 19 Annex 2: Operational Risk Assessment Framework (ORAF) ............... ......... 26 Annex 3: Additional Financing Project Costs .......................... ......... 29 Annex 4: Key Changes in Design Parameters of Cash Transfer Program ................ 30 Annex 5: Targeting Approaches ...................... ............... 33 Annex 6: Implementation Arrangements ...................................... 37 Annex 7: Economic and Financial Analysis .............................. ...... 40 Annex 8: Financial Management Assessment and Action Plan ......... ..... .......... 43 Annex 9: Procurement Arrangement.........................................50 Annex 10: Detailed Results to date (December 2012)............... ............... 55 AFGHANISTAN SAFETY NETS AND PENSIONS SUPPORT PROJECT ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Robert J. Saum Sectors: Other social services (50%); Public Sector Manager: Pablo Gottret Administration - social services (50%) Team Leader: Afrah Al-Ahmadi Themes: Other social protection and risk Project ID: P122642 management (25%); Social risk mitigation Expected Effectiveness Date: July 31, 2013 (25%); Social safety nets (50%) Lending Instrument: Emergency Operation Environmental category: B Additional Financing Type: Grant Expected Closing Date: June 30, 2016 Joint IFC: Not applicable Joint Level: Not applicable Basic Information - Original Project Project ID: P113421 Environmental Category: C Project Name: Safety Nets and Pensions Support Expected Closing Date: December 31, 2013 Project Joint IFC: Not applicable Lending Instrument: ERL Joint Level: Not applicable AF Project Financing Data [ ] Loan [ ] Credit [X ] Grant [ ] Guarantee [ ] Other: Proposed terms: Standard IDA Grant terms AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: 12.5 Cofinancing: 0 Borrower: 0 Total Bank Financing: 12.5 IBRD 0 IDA 12.5 New Recommitted Client Information Recipient: Islamic Republic of Afghanistan Responsible Agency: Ministry of Labor, Social Affairs, Martyrs and Disabled Contact Person: MT. Mirwais Sarrah, General Manager, PST Telephone No.: +93 700201191 Email: M.sarrah(a-,molsamd.gov.af AF Estimated Disbursements (Bank FY/US$m) Bank FY 2014 2015 2016 2017 Annual 3.0 5.0 4.0 0.5 Cumulative 3.0 8.0 12.0 12.5 Project Development Objective and Description Original project development objective is to: (i) improve the administration of the public pension schemes; and (ii) pilot a modest social safety net program as a first step to developing a sustainable approach to safety nets in the country. Revised project development objective is to: (i) improve the administration of the public pension schemes; and (ii) develop administrative systems for safety nets interventions, with focus on targeting and benefit payment delivery, while delivering cash benefits to the poorest families in targeted pilot districts. Project description: The proposed Additional Financing and restructuring would: (i) support the completion of activities in the three original project components; (ii) support the Government of Afghanistan's strategy to scale up the administrative reforms of the public sector pension schemes; and (iii) develop administrative systems for safety nets interventions and support further development of the evolving Afghanistan Social Protection Program (ASPP)l. New sub-components are added to components 1 and 3; the revised components are as follows: Component 1 (Pensions) will have two sub-components: (i) designing and implementing administrative modernization of the public pension system that was introduced by the Civil Service and the Military Pension Regulations, including systematizing and cleaning records of the old schemes; and (ii) designing and implementing administrative modernization program of the Martyrs and Disabled Pension System. Component 2 (Safety Nets) will support (i) the development of administrative systems for safety nets interventions, including mechanisms of targeting and beneficiary selection, benefit delivery, monitoring, grievances, and conditionality; (ii) the delivery of targeted benefit payments in the pilot districts; and (iii) the design and implementation of targeting, process, and impact evaluations of the safety net interventions. Component 3 (Capacity Building and Project Management) will support two sub-components: (i) strengthening the policy, strategies and implementation capacity for design and management of the pensions and safety net programs within the Ministry structure; and (ii) supporting project management, including managerial, operational, financial management (FM), and procurement support to the Ministry through a team of national consultants of the Project Support Team (PST). ASPP is an evolving program recently developed by MoLSAMD. It builds on the experience to date from the original project and with the intention to develop a national program. Interventions under the proposed AF are expected to further inform the development of this program. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [X]Yes [ ] No Natural Habitats (OP/BP 4.04) [ ]Yes [X] No Forests (OP/BP 4.36) [ ]Yes [X] No Pest Management (OP 4.09) [ ]Yes [X] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [X] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [X] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [X] No Safety of Dams (OP/BP 4.37) [ ]Yes [X] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [X] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [X] No Does the project require any waivers of Bank policies? [ ]Yes [X] No Have these been endorsed or approved by Bank management? [ ]Yes [ ] No Conditions and Legal Covenants: Financing Agreement Reference Description of Condition/Covenant Date Due Condition of Disbursement under Schedule 2, Section IV- B. 1.(a) - -Expenditure Categories (4) or (6): (iii) and (iv), of the Financing a) Hiring a senior financial Before disbursement Agreement management consultant for the Project Support Team, with qualifications, experience and terms of reference acceptable to IDA; b) Reconciliation financial records for the Original Project; c) Submission of interim financial reports of the [QI of SY 1392] satisfactory to IDA. -Expenditure Category (6): (d) The Adoption of the Safety Net Program Plan in accordance with Section I.B.2 (a) (i) of Schedule 2 to the Financing Agreement. Schedule 2, Section I - B.2.(b), of MoLSAMD shall submit to the Bank By August 31, 2013 the Financing Agreement ToRs for an independent technical/ financial audit of Part 2 (b) Schedule 2, Section I - B.2.(b), of MoLSAMD shall contract an By January 31, 2014 the Financing Agreement independent technical/ financial auditor for cash transfers under Part 2 (b) Schedule 2, Section I - D, of the The Recipient shall carry out the Recurrent Financing Agreement Project in accordance with the Environmental and Social Management Framework and the environmental management plans, if any.  I. Introduction 1. This Project Paper seeks the approval of the Executive Directors for project restructuring and an additional IDA Grant in the amount of SDR8.3 million (US$12.5 million equivalent) to the Islamic Republic of Afghanistan for the Pension Administration and Safety Net Project (P 13421) (Grant Number H5230-AF). 2. The proposed Additional Financing (AF) has multiple purposes. First, it would add technical assistance, capacity building, and institutional strengthening activities to all components. Second, it would support scaling up of successful activities under components one and two. Third, it would fill the financing gap that occurred under the pensions component which resulted mainly from a cost overrun for the renovation works of the Pension Department building. 3. Specifically, the AF includes provisions for: * Addressing the financing gap to complete originally planned activities related to the reform of the administration of pension of the Public Sector Pension Program (PSPP) - primarily completion of building renovations and cost overruns related to the development, modifications, and the rollout of the Management Information System (MIS); * Scaling up the pension administrative reform to expand coverage of the reform interventions to the Martyrs and Disabled Pension Program (MDPP); * Modest expansion of the cash transfer (CT) interventions under the original project while continuing to improve processes for effective targeting and payment delivery. This will support developing the administrative systems of Afghanistan Social Protection Program (ASPP) before any major scale up. * Piloting on the delivery of conditional cash transfers (CCT) to link CTs with human development outcomes. * Building institutional capacity of the Ministry of Labor, Social Affairs, Martyrs and Disabled (MoLSAMD) to manage and implement the pension reforms and Safety Net policy and interventions. 4. The restructuring would involve: (i) changes in the PDO and results framework; (ii) changes in the activities in the three project components and adding new subcomponents, and revision of component three name; (iii) changes to the implementation arrangements; (iv) adjustments in disbursement categories; (v) a revision in the project name; (vi) upgrading the environmental category rating from C to B; and (vii) an extension of the Closing Date to June 30, 2016. II. Project Background and Rationale for Additional Financing and Restructuring A. Context 5. Afghanistan's high economic growth over the last decade has been mainly driven by capital investments for reconstruction activities, security related activities, and large aid 1 flows which are all expected to decline after the transition. Real GDP has been growing at an average rate of 9.1 percent between 2003/04 and 2010/11. This strong growth masks considerable year-to-year fluctuations caused by the performance of the agricultural sector which reflects climatic conditions. After the period of transition, projections suggest that, under even favorable assumptions, real GDP growth may fall to 5-6 percent during 2011-18. 6. Three quarters of Afghanistan's estimated population of 30.6 million people are located in rural areas that are dependent on farming or farm-related activities. Approximately 36 percent are chronically poor, and roughly 20 percent consumes at less than 20 percent above the poverty line and are vulnerable to external shocks. Consequently, poverty rises to some 43-46 percent during the winter season (i.e. between November and March). Unemployment and especially underemployment in Afghanistan- respectively estimated at 8 percent and 48 percent-are already high, even with today's rapid growth. Roughly 6-10 percent of the working population has benefited from aid-financed job opportunities, most of these in short-term employment. Declining aid, therefore, can be expected to exacerbate underemployment levels (with fewer casual labor opportunities and lower pay for skilled employees). In addition to the impacts on employment this will place increasing demand on good budget management, spending that stays within budget constraints, and priority-setting that emphasizes maintaining core services. 7. The strategic and planning framework for the country, the Government's Afghanistan National Development Strategy (ANDS), includes a social protection strategy. The planning and budgetary framework is increasingly pro-poor and includes mapping of pro- poor expenditures. The formal social protection system is comprised of safety net and a pension scheme for public sector workers. Within the safety net there are a number of government and donor unconditional and conditional cash and in-kind benefit programs targeted to various population groups as well as social care services and skills development programs. In addition to the government run programs, there are other programs run by international donors and NGOs which as typically cash or food-for-work schemes primarily in rural areas. B. Project Background 8. The Afghanistan Pension Administration and Safety Net Project (P113421) original project development objectives are to: (i) improve the administration of the public pension schemes; and (ii) pilot a modest social safety net program as a first step to developing a sustainable approach to safety nets in the country. A grant of US$7.5 million equivalent was approved on October 15, 2009 and became effective on February 9, 2010. The project Closing Date is December 31, 2013. The project aims to contribute to the broader objectives of the Afghanistan National Development Strategy (ANDS) to build a fiscally sustainable pension system and an affordable social protection system, as well as strengthen the capacity and institutional framework of the MoLSAMD, via three components: (1) pension, (2) safety nets, and (3) project management. Against a total of US$7.5 million, the project has disbursed 76 percent of funds. 9. The proposed Additional Financing would enable the MoLSAMD to consolidate the gains of the pension' reform program so far and expand on the lessons learned through the 2 safety net pilots. Under the pension reform, the AF would build on early successes of Public Sector Pension Program (PSPP) modernization to initiate administrative reforms in the MDPP (focusing primarily on the operation of the central office), in addition to the completion of the originally planned activities. It would also expand the work program in safety nets in several strategic directions, including developing a system of identification of the poor and benefit delivery for safety net interventions, and eventually contribute to the system development of the new ASPP program. The focus of the support is also on establishing adequate capacity to design, operate, and monitor effective interventions (including fully integrated administration within the structures of MoLSAMD); ensuring fiscal affordability of the interventions (with careful calibration of the benefit rate and administrative costs); and improving administrative efficiency (including utilizing formal payment channels (banks) for pension payments and improved delivery in safety net interventions. Importantly, the AF would provide support to the newly established dedicated safety nets unit within MoLSAMD and capacity development of the staff of MoLSAMD at the center and provincial level to implement various initiatives. 10. MoLSAMD has obtained broad support for the effort and endorsement of the objectives of the safety net interventions. Commitment to the objectives of this work has been reflected in that: (i) the MoLSAMD has developed and adopted a strategy for ASPP development, (ii) ongoing discussion between MoLSAMD and MoF on securing public funding for ASPP in the coming years, and (iii) the project has over-disbursed in the safety nets category in FY13. Results have been promising as several of the original targets have been already met. Detailed information on achievements to date can be found in Annex 10, while a summary is provided below. 11. Component 1: Pension. With support from the original project the key elements of a reformed and modernized administration of the Public Sector Pension System have been put in place including revised institutional and human resources (HR) structure of the Pension Department, a comprehensive new MIS, a set of business processes, fiscal forecasting models for revenues and expenditures, and a new charter of accounts of the pension system as well as training payroll officers in a number of ministries on the proper procedures for deducting and remitting pension payments and on new forms and procedures of submitting pension applications. The rollout of the new MIS system in the headquarters (HQ) in Kabul and in the provincial centers would still be required and would be supported by this Additional Financing. An originally minor renovation of the Pension Department building designed to facilitate easier use and access for pensioners is still ongoing and has evolved into larger than anticipated work with the resultant cost-overruns. Minor renovations are planned for the provincial departments of the Ministry that will be in charge of the new pension program administration. 12. Component 2: Safety Nets. Under this component MoLSAMD has designed and completed the implementation of a multi-phased safety nets pilot successively, whereby each phase incorporated lessons learned from the previous phase. After implementation of Phase II, the Ministry adopted this operation as a program under the name of Afghanistan Social Protection Program (ASPP). Over the past two years, and with completion of Phase IV, the program will have provided support to over 16,000 families and close to 80,000 individuals. 3 13. The main findings of the operational evaluation of the safety nets pilot indicate that the unconditional cash benefit had a positive impact on beneficiary families, with room for improvement in some design elements. The follow up spot checks by the MoLSAMD revealed that almost all of the selected and verified families were eligible as per the guidelines. At the same time, evaluation of targeting efficiency while revealing the overall progressivity of transfers , indicated considerable inclusion and exclusion errors. On the basis of the results and recommendations of the evaluations, MoLSAMD introduced a number of important changes in the program, as reflected in the revised Operational Manual. 14. The results of the safety nets pilot have contributed to important elements of safety nets system to be further developed by the AF: (i) a cash transfer program with revised objectives focusing on the poor; and (ii) a unified mechanism of targeting and benefit delivery in the rural Afghanistan based on wide community participation. While there is still a need for further strengthening of the targeting method and delivery mechanism, with support from the AF the targeting and delivery elements of that program could potentially become a universal platform to harmonize and consolidate various programs and interventions of both the Government and the development partners focusing on the neediest groups in Afghanistan. 15. Component 3: Project Management. This component supports the two components described above through the establishment and operation of the Project Coordination Unit (PCU)3. Overall project implementation has been proceeding well, albeit initially with some delays and with recent underperformance of the financial management. The Ministry has strengthened project management by undertaking the following: (i) a new and expanded management structure for the project has been developed and implemented, with a General Manager and three specialized managers in Pension, Safety Nets, and MIS; (ii) developing the process of producing regular procurement reports and regular quarterly technical reports; and (iii) initiating a process of regular communication with relevant Ministry civil servants staff and encouraging their involvement in project management. Two key challenges that would require special attention through the AF are: (i) ensuring mainstreaming project management within the Ministry's structure as the program evolves into the ASPP, and building capacity of and ensuring knowledge transfer to key permanent staff of MoLSAMD, and ensuring that efforts are harmonized with broader institutional reform plans of the MOLSAMD through the Capacity Building for Results Program (CBRF); and (ii) addressing the current financial management weaknesses. 16. The legal covenants under the project have been fully achieved, except for the following covenants where compliance is partial: * Schedule 2. A. 1(d) "Cause MoLSAMD through the PCU to coordinate with MoF on the implementation of Part 1(a)(vii) of the Project" This clause refers to strengthening 2 The poorest 10 percent of households were about 50 percent more likely to be selected into the program than what they would be under neutral (random) targeting The unit will be restructured into a Project Support Team (PST) to ensure mainstreaming implementation within MoLSAMD structure and building capacity of Ministry staff. 4 the systems of pension contribution deduction - which has been partially complied. The remaining pending actions are currently ongoing. * Schedule 2. A. 3 "The Recipient shall ensure that all civil works under the Project shall be carried out in accordance with the Environmental and Social Safeguards Framework" - compliance with this clause is currently ongoing. The Environment and Social Management Framework (ESMF) was not prepared on time and this led to a delay in undertaking the civil works, which are currently underway. All the remaining and planned additional civil works are reflected in the ESMF. * Section II B.2 "The Recipient shall prepare and furnish to the Association as part of the Project Report, not later than forty-five (45) days after the end of each calendar quarter, interim unaudited financial reports (IFR) for the Project covering the quarter, in form and substance satisfactory to the Association" . The report for QIII of SY1391 was due on February 5, 2013. It was submitted but was not accepted by the Bank due to an issue of reconciliation between Government accounts and Client Connection. A time-bound Action Plan (Annex 8) has been agreed between the Bank and the Government including the resubmission of the overdue IFR and building sufficient FM capacity. 17. The latest project ratings are as follows: Category Rating Progress towards achievement of PDO Satisfactory Overall Implementation Progress (IP) Satisfactory Financial Management Moderately Unsatisfactory Project Management Satisfactory Procurement Moderately Satisfactory Monitoring and Evaluation Moderately Satisfactory 18. The Government of Afghanistan has shown a strong interest in scaling up the development activities financed under the original project, through an additional grant, as expressed in a letter from the Ministry of Finance to the Bank, dated February 5, 2012. The Bank team has reviewed the request and held discussions with Government on the scope of scale-up of activities, and finds Additional Financing to be the best option to maximize the development impact and results in the sector. The Ministry of Finance reiterated its interest in the Additional Financing through its letter dated December 5, 2012. 19. This request conforms to the OP 10.00 requirements. The new activities to be funded under this AF will address the financing gap to complete original activities; and will scale up the original project's impact and contribute to effectiveness of the program by building country systems for transparent and efficient pension administration and social safety nets targeted to the poorest in the country. The FM arrangements have recently been downgraded but will be considered acceptable upon completion of the Action Plan in Annex 8. 20. Eligibility for processing under OP 8.00. According to the Interim Strategy Note (ISN) all projects in Afghanistan continue to be processed under the Bank's policy for Rapid Response to Emergencies and Crises (OP8.00) .This project will assist the government in responding to 5 severe poverty and meet its pension liabilities during the upcoming transition thus assisting in continued peace-building. III. Proposed Changes 21. PDO: The revised project development objective for the AF would be to: (i) improve the administration of the public pension schemes; and (ii) develop administrative systems for safety nets interventions, with focus on targeting and benefit payment delivery, while delivering cash benefits to the poorest families in targeted pilot districts. The revised PDO reflects the project emphasis on systems development under the AF. 22. Project components. The AF would provide additional support for the original project components to complete original activities, to scale up successful activities, and implement new activities. While the total number of components would remain the same, the activities under each component will be expanded under the AF. Annex 3 outlines the estimated costs for the proposed activities under the AF. The table below provides a comparison between the original and revised project structure and costs. Original Additional Original Components Estimated Revised Components Project Total Costs Costs (US$ m) (US$ m) (US$ m) Component 1: Pension Component 1: Pension a. Designing new 3.3 (i) Designing and implementing 4.0 7.3 administrative administrative modernization of the arrangements for the Public Sector Pension Program public pension system; (PSPP) system; b. Modernization of the (ii) Designing and implementing existing pension system. administrative modernization of the Martyrs and Disabled Pension Program (MDPP) system Component 2: Safety Component 2: Safety nets nets 3.2 (i) Developing administrative systems 5.4 8.6 a. Designing and for safety net interventions; implementing a pilot safety (ii) Delivering targeted benefit net program Including payments in pilot districts (including benefit payments under the payment service provider's fee and pilot scheme; FPs services); b. Strengthening the (iii) Designing and implementing institutional capacity of targeting, process and impact MoLSAMD. evaluation of safety nets interventions Component 3: Project 1.0 Component 3: Capacity building 3.1 4.1 management and project management Strengthening capacity for (i) Strengthening policy and project management. institutional capacity for the design and management of public pension schemes and safety nets interventions, within the Ministry structure; (ii) Supporting project management 6 I I and operating costs. I Total: 7.5 12.5 20.0 23. Component 1: Pension (US$4.0 million). This component includes two sub- components: 24. Sub-component (1-1): Designing and implementing administrative modernization of the Public Sector Pension Program (PSPP). The scope and costs of some of the originally planned activities were underestimated, primarily the renovation of premises of the Pension Department4 and the development and implementation of a management information system (MIS) for the Department. Accordingly, a small portion of the proposed AF would be allocated towards completing these activities; and additional funds will support a gradual rollout of the new MIS for the Pension Department to a greater number of participating Ministries and provincial offices (planned up to 6 regional centers, including Kabul), including minor renovations and associated furniture, equipment, and capacity building activities. 25. Sub-component (1-2): Designing and implementing administrative modernization of the Martyrs and Disabled Pension Program (MDPP). Support will be provided to modernize the administration of the MDPP towards improved services for beneficiaries. This will include design and implementation of a new MIS to support registration and payments; renovations of the main office of the program in Kabul; and developing functional processes to support the institutional and administrative transformation of MDPP focusing primarily on the operation at the center. The experience in administrative modernization of the PSPP will be utilized in supporting the modernization of MDPP. 26. At the same time, the intervention of developing a strategy of operational integration of PSPP and MDPP will be dropped as the schemes will continue operating under separate departments; however an effort will be made to harmonize the benefit payment procedures. Similarly, the work related to the lump sum payouts will also be dropped as the Government does not have plans at this point to initiate payments to regular pensioners on a lump sum basis5. Startup costs of establishing bank accounts for the pensioners, costs of issuing identification cards to beneficiaries of both the PSPP and the MDPP, as well as costs of printing guidelines and forms will be funded under non-consulting services. 27. Component 2: Safety Nets (US$5.4 million). The overall objectives of this component are to develop a system of safety nets targeting and delivery and deliver cash benefits to poor families in pilot districts. This component will continue supporting the design and implementation of different administrative systems and approaches to the targeting, delivery and management of safety nets interventions. It builds on the experience of the original project while taking the support to a higher level of influencing decision making for further elaboration and improved design and institutional arrangements for the Afghanistan Social Protection Program (ASPP). This will include strengthening the current MIS within the Ministry for the social 4 Originally, Part 1 (a)(v), where the original intent of minor renovations has now evolved into a need of a full scale renovation of the existing offices Correspondingly, activities specified under Parts 1(a)(vi) and Part 1(b)(iv) of the original agreement. 7 assistance; technical support for the design and implementation of the targeting; payment and administrative systems and development of revised Operational Manual and other procedural and operational documents for the ASPP; provide technical and implementation support to the operation at the provincial offices where interventions would be implemented; as well as procuring services of Facilitating Partners (FPs) to assist the implementation of the program at the district and village level. 28. The Ministry will experiment with alternative approaches to frequencies of payments; various targeting methods (community targeting and proxy means testing - PMT); and benefit delivery through mobile/branchless banking, if the concept is proven to be feasible. PMT has been found to be effective regionally and internationally to target the income poor. It will be tested in combination with, and against the updated community based targeting methods. The AF will also support design, implementation, and continuous improvements of the nutrition and hygiene awareness campaign, as a soft conditionality for cash benefit delivery. Annex 5 provides details on the targeting approaches which will be applied and evaluated. The program accountability will be strengthened by improving the spot checks, appeal processes and providing for independent technical and financial auditing (third party monitoring). At the moment, the process of appeals is at early stages of development. The project will facilitate this design and implementation of the response mechanisms for individual appeals, including instances of systematic and gross deviations from program rules and procedures. 29. The component will deliver targeted benefit payments in pilot districts. The sub- component will finance cash payments to poor families6 with children under the age of five. It is expected that the project will provide cash benefits to about 12,000 poor families during the AF period (2014 - 2016). The size of the benefit will be set at 20 percent of the food poverty line7 per family for a period of five months (winter-spring), reported to be the most difficult for the poor. Two levels of annual benefit will be provided to families in installments: (i) US$80 for families with 1-2 children under five; and (ii) US$125 for families with 3 or more children under five. The sub-component will also fund non-consulting services for the fees for intermediary institutions (e.g. commercial banks) for the delivery of cash benefits. 30. To ensure that cash benefits are delivered to properly identified eligible families and in an efficient and transparent manner, a disbursement condition will be placed on disbursement category (6), cash benefits, until MoLSAMD has adopted the updated Safety Net Program Plan acceptable to IDA, including: (i) eligibility and selection criteria for the Beneficiaries; (ii) the form and size of Benefits and the targeting mechanisms; (iii) the administration modalities, including: Benefit delivery mechanism; verification system; monitoring and evaluation systems; management information system; inspection and technical supervision; and inter-agency coordination. 6 The family is the unit for targeting. A family is defined by "mother or female guardian and their under age 5 children". 7 A higher benefit level could lead to security risks related to payment delivery, fraud and corruption, as well as community pressures for redistribution (Operational Evaluation, 2013). 8 31. The geographical targeting will come out more prominently as the bottom of the poverty list provinces will be used where poverty was measured at or above 50 percent, as defined by the National Risk and Vulnerability Assessment (NRVA). Two to three provinces will be selected, with 6-8 districts in each province. The number of villages will depend on the population size. District selection will be done in consultation with provincial authorities and upon pre-set agreed criteria such as considerations of security and accessibility. District selection will shift to use poverty maps upon their availability. The coverage of the program in the pilot districts will be 20 percent of all the families (the poorest 20%). Further elaboration and testing of introducing nutrition-based soft conditionality (co-responsibility)8 will be implemented in some districts. The CCT implementation will seek to continue the collaboration with Ministry of Health and UNICEF, and building on the ongoing experience of this collaboration within the framework of the existing operational guidelines developed under the original project. 32. Safety Nets Evaluation. To reflect the component's focus on developing evidence- based systems, the component will support the design and implementation of an evaluation framework which will consist of impact, targeting, and operational evaluations. The impact evaluation will measure the impact of cash transfers on food consumption, and the impact of the nutrition co-responsibility interventions on beneficiary's hygiene and nutrition practices while the targeting evaluation will assess and compare the performance of the different targeting mechanisms. The operational evaluation will focus on the efficiency of the grievance, payments and management systems. The impact evaluation's scope and methodology will be developed with the support of the World Bank team within the first four months of project implementation. The impact evaluation will build on the design drafted with support from the World Bank team under the original project. The Ministry will procure services of a local firm for data the survey implementation. The Bank team will provide technical support to the analysis of the evaluation. The sub-component will also finance workshops to present and discuss the evaluation findings and lessons learned. The overall objective will be to put in place a system where tested results are continually fed into fine tuning of the ASPP development. 33. Component 3: Capacity Building and Project Management (US$3.1 million). Financing under this component is directed in particular towards strengthening the institutional capacity of the MoLSAMD in policy development and implementation strategies for effective delivery of social services. While currently the Ministry relies on a Project Coordination Unit (PCU) for many of the program management functions, the goal of this component is to support building longer term capacity within the Ministry for technical and management functions in harmonization with the country's Capacity Building for Results (CBRF) program process. This will be achieved in two sub-components: 34. Sub-component (3-1): Strengthening policy and institutional capacity for the design and management of pension schemes and safety nets interventions. To ensure institutional and fiscal sustainability of any future scale up strategy for the cash transfer program, the Ministry is seeking to develop and establish a fully functional dedicated unit that would be 8 "soft conditionality or co-responsibility" means that the compliance with the conditionality to participate in awareness sessions and nutrition activities will be monitored for the purpose of identifying families that need referral support to health facility, at the same time non-compliance will NOT result in dropping eligibility to the benefits. 9 responsible for the implementation and administration of various targeted interventions on the programmatic rather than project basis. This work will be coordinated with the technical teams of the European Commission (EC), WFP, UNICEF and the World Bank (all currently active in safety nets and institutional development). The proposal for establishing a dedicated unit within MoLSAMD has been endorsed by the Ministry and will require endorsement by the Civil Service Commission (CSC) in order to be fully institutionalized. 35. MOLSAMD is preparing a proposal for tier-two of the CBRF Program (expected for June 2013). The current Public Pension Department Director General was recruited through the CBRF9 Facility and the tier-two proposal prioritizes the recruitment of qualified managers for the Martyrs and Disabled and Social Protection Directorates. These are excellent first steps; however, the recently commissioned Institutional Assessment (IA) found that the current institutional structure and functions of MOLSAMD are complex, with multiple duplication of efforts that can only be addressed through a comprehensive long-term institutional development strategy. This sub-component will provide technical assistance to support MoLSAMD's efforts to implement the tier-two plan and potentially develop a tier-three proposal for CBRF. The project will finance short term staff needed to ensure that progress on CBRF implementation and design is sustained and further expanded. Furthermore, institutional capacity building efforts supported under the proposed AF will be coordinated with other World Bank and development partners' support to ensure a comprehensive and holistic approach to the extent possible. 36. The sub-component will provide technical assistance, training and administrative support. It will support capacity building of the government staff both in the center and in the provinces to operate pension programs and safety net interventions, including consulting services and training. The sub-component will also provide technical assistance to MoLSAMD senior management team in areas of policy formulation and strategic planning. 37. Sub-component (3-2) Project Management. This sub-component will provide for the overhead and operating costs for project implementation support. This includes the cost of the technical and operational Project Support Team (PST), including national and international technical consultants. A team of provincial technical coordinators (both in pension and safety nets) will be hired and trained to strengthen the capacity of the provincial offices of MoLSAMD where the project will be rolled out under components 1 and 2. 38. Under this sub-component the project will procure office vehicles and/or motorcycles where highly needed to facilitate access to communities for awareness, supervision, and verification. Provisions will be made to fund training and workshops; and incremental operating costs of the project including costs of relevant office utilities, printing and disseminating various communication and awareness raising materials, administrative forms and materials, etc. 39. Results Framework: The Results Framework has been adjusted to reflect the revised PDO and expanded scope of the project. The following are the revised outcome indicators for the project: 9 CBRF Program is a national project funded by Afghanistan Reconstruction trust Fund (ARTF) and aims to incentivize reform in key ministries to improve service delivery results and rebuild the capacity of the Government institutions. 10 * Number of Public Sector Pension Program (PSPP) beneficiaries registered in the new PSPP-MIS, for which complete electronic records exist * Number of Martyrs and Disabled Pension Program (MDPP) beneficiaries registered in the new DMPP-MIS, for which complete electronic records exist * Percentage of beneficiaries satisfied with the facilities offered by the Kabul PSPP Department * Number of families receiving assistance under the safety net component * Percentage of safety net beneficiaries coming from the poorest 30 percent of population, in project villages * Percentage of safety net beneficiaries receiving the payments in time, as specified in the Program Operational Manual 40. Implementation Arrangements: The implementation arrangements for the project are revised to emphasize mainstreaming project management and implementation responsibilities within the MoLSAMD structure. An institutional set up is already in place represented by the Department of Pension, Department of Martyrs and Disabled and Directorate of Social Protection. However, in the original project day-to-day project management was heavily dependent on the Project Coordination Unit (PCU) to compensate for capacity limitation in these departments to ensure smooth implementation and project management. 41. In the last two years, MoLSAMD has accumulated modest capacity in project management, and has recently subscribed to the Capacity Building for Results (CBRF)'o program. MoLSAMD is currently preparing a proposal to CBRF (expected to be submitted in June 2013) which includes the staffing of Directorates of Martyrs and Disabled and Social Protection. The Pension General Director has already been appointed through the CBRF process. To further support MoLSAMD to build implementation and service delivery capacity, the AF will revise the implementation arrangement to include: scale down and revise the structure and responsibilities of the PCU, which will be renamed the Project Support Team (PST) and will primarily have an operational and technical support role; Directors and heads of departments are responsible for project implementation and management under the supervision of the relevant Deputy Ministers and the oversight of the steering committee (SC). The project will overall support the MoLSAMD and Government's efforts to strengthen and build managerial and technical capacity inside the civil service structures. The salaries and allowances paid to project financed staff will be consistent with World Bank's new guidelines on salaries and allowances that are a part of the Bank's efforts to support the Government's efforts to harmonize pay and allowances across development programs. The revised implementation arrangements are presented in Annex 6. 42. Adjustment in the Disbursement Categories is needed to correct for the temporary overdraw in Category 2 up to the limit of US$400,000 to support the uninterrupted operation of the safety net component of the project, as per the no objection letter issued by the Bank on October 8, 2012. Additionally, to correct for the drop of training activities as eligible activities 11 under Category 1 of the original financing agreement, the GoA has requested a retroactive financing of training activities from the date of the original financing agreement. An amendment to the original project's Financing Agreement will reflect these adjustments. 43. Environment Category. The original project was rated as C for environmental safeguards as the civil works in the Public Sector Pension Department were anticipated to be minor. It was later agreed to expand the civil works in the Pension Department. Additionally, the AF would support renovation works in the Martyrs and Disabled Pension Department. All civil works under the project have been assessed as Category B. Therefore, under the AF, the environmental safeguards rating is changed from C to B. 44. Extension of the Closing Date. In order to implement the proposed additional activities and undertake an impact evaluation, a two and a half year extension of the Closing Date of the original project and the AF, until June 30, 2016 is required. 45. Project Name. The name of the project will be changed from " Pension Administration and Safety Net Project" to "Safety Nets and Pension Support Project" to reflect the primary focus of the activities supported by this operation on development of safety net systems. IV. Appraisal Summary Technical 46. The modified and additional activities are strategically aligned with the Afghanistan National Development Strategy (ANDS), the National Priority Programs (NPPs) and the Bank's Interim Strategy Note (ISN). The Interim Strategy Note, in particular, emphasizes the importance of developing interventions with strong targeting, as a means of combating poverty in the country. Here, the pilot has made an initial effort at developing the basis for a future national poverty assistance system and the AF will permit the Government to build on its early experiences to continue refining this effort. Additionally, the successes to date in cleaning records of the civil service pensioners and modernization of the program administration will be taken forward through the AF for roll out at the provincial level and scaled up to include the Martyrs and Disabled Pension Program. The MDPP is the largest social assistance program in Afghanistan; hence eventually the AF will support improving service delivery and provide data for future interventions in policy reforms of this important scheme. The Program covers around 200,000 beneficiaries. 47. Improving the capacity of MoLSAMD to design and implement safety net programs such as those supported under this AF will benefit a number of similar and related interventions in the country. This will include current and future activities, such as conditional and unconditional cash transfers, as well as public works interventions, through the utilization of common targeting and benefit delivery mechanisms. 48. Modifications to the project management arrangements will be required to increase the existing capacity of the Project Support Team (PST) and ensure transfer of capacity to MoLSAMD structure. As with the existing arrangement whereby the Public Pension Director General has been recruited through the CBRF Program, the Ministry will continue to seek 12 benefit from the CBRF program including the recruitment of qualified managers and staff in the Martyrs and Disabled Department and the Social Protection Directorate. The PST function will be primarily operational and fiduciary support; therefore the FM capacity and the provincial support will be expanded through the recruitment of a qualified senior FM specialist and provincial coordinators in all participating provinces. 49. Changes to the Results Framework are necessary to ensure adequate measuring and monitoring of the revised PDO indicators and reflect changes in the components structure. Such changes have been incorporated in the revised Results Framework (Annex 1) with input from the implementing Ministry and are expected to better illustrate the scope of the Project, its focus on systems building, and the implementation effectiveness towards achievement of new targets. Economic and Financial Analysis 50. Three types of outcomes are expected from the interventions supported under the project: (i) significant fiscal savings for the two pension schemes assisted by the program (PSPP and MDPP); (ii) more efficient program delivery; and (iii) consumption smoothing effect for families receiving cash transfers. 51. The activities under the pension schemes component are expected to result in significant savings. The introduction of a modern MIS combined with the implementation of a beneficiary census for each scheme will enable the clean-up and update of beneficiary records. Moreover, the improvements of the registration and update processes will significantly reduce the administrative costs, as well as the risks of error, fraud and corruption. Without taking into account the savings resulting from the reduction in the administrative costs and the benefits of improved governance and transparency, and assuming a constant nominal budget of the two pension schemes, the estimated savings from cleaning up the beneficiaries records accrue to a total of US$15.5 million in the first year after the activities are finalized, for an investment of about US$3.5 million in the new systems. Adjusting for inflation over the project life this translates into a net benefit of two dollars for each dollar spent. 52. The targeting performance of the Safety Net pilot will improve. The proposed changes in the targeting mechanism of the safety net pilot are expected to lead to increased efficiency gains. First, by focusing on the poorest provinces (those with poverty rates above 50 percent based on the 2007/08 NRVA estimates) the risks of leakages are considerably reduced. Second, the focus on families with children under age 5 will reduce the discretion at local level, and thus the sources of inclusion errors. Third, the introduction of clear selection rules, including through a PMT instrument targeting the poorest 20 percent in the selected provinces, is expected to improve the overall targeting performance of the program. Based on simulations using the 2007/08 NRVA about 70 percent of beneficiaries will come from the poorest 20 percent of population at national level. 53. The estimated poverty impact on beneficiaries is positive. The safety net pilot will continue to focus on the vulnerability associated with seasonal factors, in particular those characteristic to the winter season. The size of the benefit will be set at 20 percent of the food 13 poverty line1 per family for a period of five months (winter-spring), reported to be the most difficult for the poor. Simulations based on NRVA show that the proposed structure and level of benefit will reduce the food consumption shortfall of beneficiary families by 40 percent (from 0.32 to 0.19), while the reduction in the food poverty rate of beneficiaries is estimated at about 10 percent (from 80 to 72 percent). In reality, since the survey data (NRVA 2007/08) used to estimate the poverty impact is significantly affected by the 2007/2008 food crisis and thus reflects a higher food poverty rate than in a regular year, it is likely that the poverty impact of the safety net intervention will be higher. Social Impact 54. Gender figures prominently in the design of the proposed implementation arrangements for the cash transfer program including: the eligible group for the program (where mothers with children are the focus), selection mechanisms (where female participation is explicitly prescriber by the operations manual), delivery methods (where mothers will be required to collect the benefit), and messages of the nutrition awareness campaign (targeting primarily young mothers). 55. The primary objective of such safety net program, when fully established, is seen by the Government as to smooth food consumption of families with children facing food shortages, especially during seasonal fluctuations. The focus of the main intervention of the program is exclusively on children aged 5 and below and on their mothers (including pregnant women and lactating mothers). 56. The project emphasizes the community's role in supporting transparent and inclusive project targeting and implementation. This is reflected in the wider community participation throughout the beneficiary identification and verification processes. In the original project this role with primarily assigned to the Community Development Committees (CDCs), however in the AF wider community participation is planned. The revised operations manual (dated September 2012) outlines the role of village elderly, religious leaders (Mullas), and women in the community level processes. The grievance mechanism is also further elaborated and will be enhanced in the AF to ensure inclusiveness and fairness of the selection process and wider community participation overall to enhance community ownership of the interventions. Financial Management and Disbursement Arrangements 57. The overall FM arrangements in Afghanistan are managed by the MoF centrally through AFMIS (Afghanistan Financial Management Information System). The MoF is responsible for payments, making withdrawal applications, recording transactions, preparation of annual financial statements and other functions for all the projects. These country level FM arrangements are separately supervised. The implementing line ministry, supported by the Project Support Team (PST) is responsible for project execution, submission of the required 1 A higher benefit level could lead to security risks related to payment delivery, fraud and corruption, as well as community pressures for redistribution (Operational Evaluation, 2013). 14 form MI6 to the MoF for payments and submitting monthly/quarterly information reports to the Bank. 58. The FM arrangements and reporting requirements as in the original project remain valid. The project FM team is comprised of a Financial Management Specialist and an FM Assistant, both reporting to the PST General Manager. The latest Financial Management review of the project was conducted in March 2013 and found the overall performance of financial management to be Moderately Unsatisfactory, a downgrading from Moderately Satisfactory over the last year. The Review concluded with concern about the technical capacity of the FM team and their inability to reconcile project data with client connection and non-compliance with FM requirement in the submission of an acceptable Interim Financial Report (IFR) for QIII SY1391 which was due on February 5, 2013. 59. A time-bound Action Plan (see Annex 8) has been agreed with the Government and it includes the hiring of a qualified Senior FM Consultant to support implementing the following tasks: a) reconcile the project books with client connection; b) submit to the Bank an acceptable IFR report; c) procure and install an accounting and reporting system; d) prepare the system chart of accounts to generate IFR and produce project financial statements; e) complete the registry of fixed assets procured under the project; and f) develop an FM manual that reflects all the above. Based on satisfactory performance of the above tasks by the Senior Financial Consultant, he/she can be maintained to manage the project FM aspects. Annex 8 details the FM assessment and agreed actions. The hiring process of the FM consultant is in progress and the consultant is expected to be contracted by April 25, 2013. Hiring of a qualified financial consultant, submission to the Bank of an acceptable IFR for QI of SL1392, and the reconciliation of disbursement information between project records and IDA records are conditions of disbursement for expenditure categories 4 and 6 (under Components 1,2 and 3 (a)) under the proposed AF. 60. Currently, the payment mechanism under the safety net component is using Facilitating Partners (FPs) and Village Selection and Verification Committees as the tools for ensuring appropriate selection of beneficiaries and to monitor the payment process. More details on the selection and payment process can be found in the FM annex. Under this AF, an additional risk mitigating measure was added to this process through a FM covenant in the Financing Agreement that would require semi-annual independent technical and financial audits of the cash benefit delivery under Component 2 in accordance with terms of reference to be prepared by the Borrower and agreed with the Bank before August 31, 2013. Contracting with a qualified technical and financial auditor should be completed by January 31, 2014. Procurement Arrangements 61. Procurement for the AF will be administered in accordance with the World Bank's Guidelines: Procurement under IBRD Loans and IDA Credits dated January 2011 Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated January 2011 and the provisions stipulated in the Financing Agreement. In addition, the World Bank's Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants dated October 15, 2006 revised in January 2011 has been shared with the recipient. 15 The World Bank's Standard Bidding Documents, Requests for Proposals, and Forms of Consultant Contract will be used. Civil works and goods following National Competitive Bidding (NCB) procedures shall be procured using the agreed Standard Bidding Documents (SBDs) for Afghanistan. It has been agreed by both parties that in the event of a conflict between IDA Procurement/Consultant Guidelines, as per Article 4 (2) of the Procurement Law July 2008 (Amendments in January 2009 incorporated) of the GoA, the IDA Procurement/Consultant Guidelines shall prevail. 62. The Project procurement team includes a procurement specialist and one procurement officer. Although the procurement team has obtained experience during the last year, contract management is an area that needs further improvement. The Project Support Team (PST), in consultation with the Bank, has recently developed a contract management tool. This tool is expected to enhance contract management and monitoring. Overall, procurement performance is rated Moderately Satisfactory. Recently MOLSAMD has been accredited by Procurement Policy Unit (PPU) of the ministry of finance this will further reduce the procurement risk under the project. Safeguard Policies 63. The project will be renovating some existing buildings and facilities of the Public Pension Department and the Martyrs and Disabled Pension Department and some minor works at the provincial level, thus the OP 4.01 is triggered and the project will be Category B. Therefore, an Environmental and Social Management Framework (ESMF) was disclosed on March 30, 2013. The ESMF has generic relevant tools, e.g., guidelines, check lists, negative lists and etc. to be later on applied to the specific subprojects sites and facilities to be renovated and to ensure that the construction and renovation works as well as the facilities during operation will not harm the local environment and that the sanitation and hygienic requirements are followed properly in the facilities and during the construction/renovation stage of the sites. The ESMF includes guidelines for site specific Environmental Management Plans (EMPs) and for the Environment Health and Safety issues during the renovation and operation phases of the subprojects/facilities. 64. MoLSAMD and its relevant department will have the responsibility to implement the ESMF via its Focal Point and the project PST. The project team will apply the ESMF and its tools to prepare site specific Environmental Management Plan (EMP). The ESMF will be included in the bidding and contracting documents. Relevant training will be provided to the site engineers and foremen on the safeguards issues and the Bank safeguards specialists can help in this regard. 65. The physical works under the project relates to renovation of existing government buildings in Kabul and minor works at the provincial level which will be located on government land. Hence, there will be no land acquisition taking place under the project. Since some buildings may have been non-functional for years or currently used for alternative purposes, documentation is required that the building/land is free of encroachments, squatters, encumbrances and other claims prior to renovation or rehabilitation. In the event that any Project activity would result in relocation of businesses and squatters, MoLSAMD will ensure necessary 16 measures consistent with the Environmental and Social Management Framework have been executed prior to such relocation. The ESMF provides guideline for how to assess and address any such issues and claims and includes a grievances redress mechanism. 66. There are anticipated positive social effects of the project in that the design of the cash transfer and nutrition awareness program addresses gender disparities and women's empowerment. Female members of the community will participate in decision making process on the identification of potential beneficiaries; they are represented in the Village Development Committee (VSC) and Village Verification Committee (VVC); and according to the safety nets program guidelines, cash benefits are delivered to the mothers and female guardians. Policy Exceptions and Readiness 67. There are no exceptions to Bank policies. Readiness 68. The GOA has shown a high level of commitment to the program of the reform so far as evidenced by achievement of the key targets of the original project indicators as well as satisfactory disbursement rates. The MoLSAMD has worked in close collaboration with the IDA team to prepare the proposed Additional Financing. Risks 69. The risk of achieving the Project Development Objective (PDO) is rated as "Substantial" and is associated with the upcoming Transition in 2014 which may impact the security situation on the ground. With the transition, it is likely that aid flows will decrease which will impact budgets in Afghanistan and also employment opportunities. It is therefore likely that poverty levels will be negatively impacted by the transition. As a result, the need for a strong safety net system becomes all the more critical for Afghanistan. To help develop such a system this project will test and evaluate multiple targeting methods, a co-responsibility related to nutrition and several different payment methods. Significant external evaluations will be conducted to ensure transparency and gather lessons. These evaluations are necessary as there are perceived risks surrounding inclusion and exclusion errors and management capacity within the Ministry as well. 70. Within the Ministry there are considerable concerns with regards to building and implementing a coherent policy, framework and systems. However, the Ministry has made significant strides in building its capacity thus far and is committed to further strengthening. As the recent Institutional Assessment describes, the Ministry has undertaken a number of steps to combat corruption including cleaning the records of the Martyrs and Disabled pension scheme where over 50,000 illegal recipients were found and removed. The Ministry has also started delivery of pension benefits through bank accounts making them more transparent and trackable. The Ministry also instituted weekly leadership meetings to enhance divisional coordination. Finally, MoLSAMD has drafted a ministerial strategy following a consultative process which included NGOs and Development Partners. The institutional risks remain substantial. As a result, this project makes specific a goal to build Ministry capacity moving away from the PCUs and 17 towards building sustainable capacity within the Ministry. To that end, the project is also working to ensure that the Ministry continues to engage with the Government of Afghanistan's Capacity Building for Results (CBRF) program to support the Ministry bringing in higher level technical experts for the medium to long-term. 71. To ensure transparency of the benefits transfers, delivery methods is continuously evaluated under external operational evaluation. New requirements in benefit collection are being introduced to ensure transparency and accountability, including creation of special committees at the provincial level and facilitating partners who will act as external supports for the cash transfers. In addition, grievances and audit functions will be strengthened. Disbursement of funds to finance cash benefit under the AF will be subject to a third party technical and financial audit. 72. To support a more harmonized approach to poverty alleviation and social protection, the project is assisting the MOLSAMD to put together a Social Protection Working Group in order to build common understandings and coordinate SP efforts in the country under a united vision and policy. The working group consists of key stakeholders from the Development Partners, the Government and other areas. The working group meets quarterly and is chaired by the Minister. 18 Annex 1: Results Framework and Monitoring Afghanistan: Safety Nets and Pensions Support Additional Financing Revisions to the Results Framework Comments/ Rationale for Change PDO Current (PAD) Proposed (i) Improve the (i) Improve the administration of the public Request from the Government of Afghanistan administration of the pension schemes; and (ii) develop to (i) replicate the existing support for PSPP to public pension schemes; administrative systems for safety nets DMPS; (ii) continue supporting the and (ii) pilot a modest interventions, with focus on targeting and development of safety net interventions, with social safety net program benefit payment delivery, while delivering emphasis on developing robust safety net as a first step to cash benefits to the poorest families in systems; and (iii) focus the safety net developing a sustainable targeted pilot districts. interventions on families with children under 5. approach to safety nets in the country. PDO indicators Current (PAD) Proposed change* A central register provides Revised: Number of PSPP beneficiaries The indicator is revised to be more specific and computerized record- registered in the new PSPP-MIS, for which to allow for a better measurement of progress. keeping of participants and complete electronic records exist The initial indicator was split into two flow of funds Revised: Number of MDPP beneficiaries indicators to reflect the new activities related to registered in the new MDPP-MIS, for which the MDPP-MIS complete electronic records exist Improved services to Revised: Percentage of beneficiaries The indicator is revised to better reflect the beneficiaries satisfied with the customer service facilities activities financed under the project, and to offered by the Pension Department allow for measurement of the expected (including waiting area, office building, etc.) outcomes. Improved revenue and Moved to intermediate results indicators This indicator is not reflecting major activities financial management of supported by the project. the pension programs Streamlined monitoring, Moved to intermediate results indicators The indicator is not reflecting major activities budgeting and planning of supported by the project. the pension program Safety net framework Revised: Percentage of safety net Original indicator achieved - the pilot was developed and tested. An beneficiaries coming from the poorest 30 launched, and targeting and operational evaluation of the pilot percent of population, in project villages evaluations were carried out. The indicator was program undertaken Revised: Percentage of safety net revised by being split in two indicators, to beneficiaries receiving the payments in time, reflect the new emphasis on building targeting as specified in the Program Operational and payments systems. Manual New: Number of families receiving Reflects the coverage of the safety net assistance under the safety net intervention (cumulative) 19 Intermediate Results indicators Current (PAD) Proposed change* Developed new Revised: Operational Manual of the PSPP The indicator was referring only to PSPP, and operational procedures and Pension Department developed, including was amassing several indicators. The revision rules, record-keeping operational procedures and rules, and TORs allows for better measurement and monitoring, systems, TORs for the Revised: Operational Manual of the MDPP and reflects the additional activities for the departments and staff, and developed, including operational procedures MDPP. fully trained staff of the and rules, and TORs Pension Department Revised: Number of PSPP Pension Department staff trained to implement new rules/ procedures Revised: Number of MDPP staff trained on the new rules/ procedures Legacy schemes Revised: PSPP pension eligibility The indicator was including two different modernized. Eligibility verification and recertification procedures indicators. The revision allows for better verification procedures defined and enforced. measurement and monitoring. defined, pensioners census Revised: PSPP pensioner census conducted conducted Claims processing and Revised: Number of agencies/ ministries The indicator is revised to reflect the actual benefit payment time connected to PSPP MIS and submitting activity which is expected to lead to a reduction shortened online applications for new pensioners in claims processing time. The project will influence only marginally the benefit payment time Contribution compliance Dropped Partially accomplished. This indicator is being section within MoF dropped since the project will not follow up on established and proper this activity. monitoring systems introduced New: Percentage of beneficiaries satisfied with the customer service facilities offered by the Kabul DMPS Department (including waiting area, office building, etc.) Improved revenue and Revised: Chart of Accounts developed and Achieved. This indicator was brought down financial management of introduced in the Treasury Accounting from PDO indicators. the pension programs system. Streamlined monitoring, Revised: New reporting and monitoring This indicator was brought down from PDO budgeting and planning of system for PSPP established in all 6 indicators. the pension program provincial centers. Parameters of a safety net Dropped This indicator lacks specificity. program defined. Mechanisms to award and Revised: Annual spot checks carried out The original indicator is captured now by two deliver benefits in place. (through third party verification new PDO indicators (targeting performance mechanisms / Ministry's internal systems) to and payment delivery). The focus of this verify compliance with safety net benefits indicator shifted towards improved checks and delivery procedures balances. Computerized Revised: Number of beneficiary families in The indicator was revised to better monitor implementation tracking the upgraded Safety Net MIS progress. system in place and operational Project implementation Dropped Project implementation will be monitored as according to schedule part of the Bank team due diligence New: Appeals and grievances mechanisms in place and functional 20 New: Percentage of beneficiaries participating to nutrition and hygiene awareness sessions in the CCT communities New: Number of staff under the safety nets dedicated unit within MoLSAMD Fiduciary obligations Dropped This indicator is not an intermediate result. It fulfilled will be monitored as part of the Bank team due diligence 21 REVISED PROJECT RESULTS MONITORING FRAMEWORK Project Development Objective (PDO): (i) Improve the administration of the public pension schemes; and (i) develop administrative systems for safety nets interventions, with focus on targeting and benefit payment delivery, while delivering cash benefits to the poorest families in targeted pilot districts. Baseline To Target Values Original DData Source Responsibility PDO Level Results Indicators Project Frequency for Data Comments Q Start (December Dec 2013 Dec 2014 Dec 2015 June 2016 Methodology Collection * (2 15,2012) Number of PSPP beneficiaries registered in the new PSPP-MIS, Semi- PSPP-MIS/ PD directorate Disaggrega fo wih oplteeecrni 0 220 5,000 30,000 65,000 85,000 An 1 Project ofMLAD ted by for which complete electronic Annually rptsof MoLSAMD gne recods eistreports gender records exist Number of DMPP beneficiaries Disaggrega registered in the new MDPP-MIS, Semi- PP-MIS/ MD directorate dg a D 0 0 0 0 20,000 40,000 Poetted by for which complete electronic Annually rot of MoLSAMD gender records exist Percentage of beneficiaries satisfied with the customer Twice Pension Disaggrega service facilities offered by the E n/a 30% n/a n/a 75% n/a during beneficiary PD directorate ted by Pension Department (including project life survey gender waiting area, office building, etc.) Percentage of safety net Twice Disaggrega beneficiaries coming from the E n/a 32% n/a n/a 60% n/a during Targeting MoLSAMD ted by poorest 30 percent of population, (2011) survey in project villages Payrolls/ Percentage of safety net MIS/ Disaggrega beneficiaries receiving the El n/a 40% 40% 50% 60% 60% Annual Operational MoLSAMD I)sgrg payments in time, as specified in evaluations/ gender the Program Operational Manual Project reports Number of families receiving Safety Net assistance under the safety net 2 0 16,465 18,000 24,000 28,000 28,000 Annual MIS MoLSAMD interventions (cumulative) Intermediate Results and Indicators 22 Baseline Progress to Target Values Origmal date Data Source/ Responsibility Intermediate Results Indicators Q Project Frequency for Data Comments I Start (December Dec 2013 Dec 2014 Dec 2015 June 2016 Methodology Collection (2010) 2012) OM fine- Finalized tuned and Updated Operational Manual of the PSPP TORs and An advanced OM being updated OM being Pension Department developed, E n/a Rules are draft of manual used for day based on used as a Annual Project PD directorate including operational procedures defined and complete and to day implement standard reports of MoLSAMD and rules, and TORs approved being reviewed ation for PSPP experienc operation e to date OM fine- tuned and Updated Operational Manual of the MDPP A advanced updated OM being Pension Department developed, E n/a n/a No draft of OM based on used as a Annual Project MD directorate including operational procedures for MDPP implement standard reports of MoLSAMD and rules, and TORs completed ation for MDPP experienc operation e to date Number of PSPP Pension Disaggrega Department staff trained to u n/a 0 15 70 70 70 Annual Project PD directorate I)sgrg implement new rules/ procedures reports of MoLSAMD gender (cumulative) Number of MDPP staff trained on P Disaggrega the new rules/ procedures E n/a n/a 0 0 35 35 Annual Project MD directorate ted by (cumulative) reports ofMoLSAMD gender Verification Verificati Verificatio and on and n and Verification Verification recertificatio recertifica recertificati n tion PSPP pension eligibility procedures and im nton verification and recertification H n/a implemented recertification implemented implement implemente Annual Project PD directorate procedures defined and applied. for new implemented in in Kabul and ed in d in Kabul reports of MoLSAMD beneficiaries Kabul two Kabul and and five pilot additional additional pilotadditonal provinces provinces provinces Census procedures Pensioners Disaggrega PSPP pensioner census conducted H n/a drafted; Census for PSPPlensus yes yes Annual rot PD doAte ted by tender PSPP initiated completed. ret PD M oAte gender initiated. 23 Intermediate Results and Indicators Baseline Progress to Target Values Original date Data Source/ Responsibility Intermediate Results Indicators Q Project Frequency for Data Comments 0 Start (December Dec 2013 Dec 2014 Dec 2015 June 2016 Methodology Collection r. (2010) 2012) Number of agencies/ ministries connected to PSPP MIS and E n/a 4 15 20 25 25 Annual Project PD directorate submitting online applications for reports of MoLSAMD new pensioners Percentage of beneficiaries satisfied with the customer T P sriefclteofeebyteTwice Pension Disaggrega service facilities offered by the E n/a 54% n/a n/a n/a 75% during beneficiary MoLSAMD ted by Kabul DMPS Department poetlf uvygne (including waiting area, office project life survey gender building, etc.) New pension Chart of Accounts developed and revenue Proect accounting P introduced in the Treasury E n/a procedures n/a n/a n/a n/a Annual reporting and MoLSAMD Achieved Accounting system adopted by supervision and MoF MoF/Treasury missions New New reporting New reporting reporting system from system from and New reporting and monitoring the provinces the provinces is monitoring system for PSPP established in all E n/a is under under system for yes yes Annual Project PD directorate 6 provincial centers, preparation as preparation as PSPP reports of MoLSAMD a part of the a part of the established new PD MIS new PD MIS in all 6 roll out. roll out. provincial centers. Annual spot checks carried out (through third party verification mechanisms / Ministry's internal H n/a no. no yes yes n/a Annual Project MoLSAMD systems) to verify compliance reports with safety net benefits delivery procedures Number of beneficiary families in Safety net the upgraded Safety Net MIS H n/a n/a. n/a 6,000 10,000 10,000 Annual MIS/ Project MoLSAMD reports 24 Intermediate Results and Indicators Baseline Progress to Target Values Origmal date Data Source/ Responsibility Intermediate Results Indicators Q Project Frequency for Data Comments I Start (December Dec 2013 Dec 2014 Dec 2015 June 2016 Methodology Collection r. (2010) 2012) Appeals and grievances mechanisms in place and E n/a no no yes yes yes Annual Project MoLSAMD functional reports Percentage of beneficiaries Disaggrega participating to nutrition and E n/a n/a n/a 70 70 70 Annual Project MoLSAMD I)sgrg hygiene awareness sessions in the reports tede CCT communities gender Number of staff under the safety Disaggrega nets dedicated unit within E n/ a 4 4 6 6 6 Annual Project MoLSAMD ted by MoLSAMD reports gender 25 Annex 2: Operational Risk Assessment Framework (ORAF) Afghanistan: Safety Nets and Pensions Support Additional Financing 1. Project Stakeholder Risks I Rating Substantial Description: Risk Management: * Lack of awareness of the safety net type programs Publicizing results of the recent Afghanistan Social Protection Review Report, with a view of objectives and principles among the Government and the promoting consensus on the priorities and mechanisms in the poverty alleviation. public. Social Protection Working Group started as part of project as a vehicle for promoting discussion and * Concerns and slow acceptance on the Government side of maintaining support for the program during the upcoming transition period cash transfer benefits. - Resp: Bank I Stage: Imp I Due Date : 05/31/20121 Status: Finalized; to be disseminated Risk Management: The Task Team will work to bring in information from the region and internationally showing the benefits of cash transfers. Dissemination of the results of the many evaluations covered under the project will also allow for further awareness raising. There is also a co-responsibility on nutrition and hygiene awareness as part of the safety net program scale up strategy to begin analyzing the potential for co-responsibilities on cash transfers in Afghanistan - Resp: Client/Bank I Stage: Prep I Due Date : ongoing Status: ongoing Risk Management: Introduction of an information, communication and media/civil society relations campaign in the Ministry to deliver information to stakeholders and beneficiaries, and collect feedback, through multiple channels - Resp: Client I Stage: Prep I Due Date : continuous Status: continuous 2. Implementing Agency Risks (including fiduciary) 2.1 Capacity IRating: Substantial Description: Risk Management: " Limited fiduciary capacity of the Ministry (including in The project management is being strengthened with the introduction of dedicated line managerial Procurement and FM), resulting in irregularities and delays functions and operations support (including FM and Procurement). The project is developing a in implementation. standardized database/software to support financial and procurement management. Technical team * Lack of institutional and technical capacity of MoLSAMD to is also being expanded. MoLSAMD has been accredited by Procurement Policy Unit (PPU) to manage the program. handle procurement independently without going through ARDS. The involvement of the Procurement Directorate of MoLSAM\D in project procurement activities will lower the capacity risk. - Resp: client I Stage: Imp I Due Date : 09/30/20131 Status: Not yet Due Risk Management: The strategy reflects a phased approach to the development of the program. New elements (e.g., new targeting methods) will be added first on a "proof of concept" basis, so particular lessons could 26 be captured and analyzed before the future rollout. Training will be continuously provided both in fiduciary functions and in technical areas pertaining to the program operation. As part of building the ministry's capacity the project will support MoLSAMD to participate in the Government's Capacity Building for Results (CBRF) program, which will bring in qualified staff on five year contracts to ministries. - Resp: client I Stage: Prep I Due Date : ongoing| Status: ongoing 2.2 Governance Rating: Substantial Description: Risk Management: * Weak institutional arrangements for the oversight from the A team of provincial coordinators will be established under the project to assist the effort of roll out central Ministry at the Provincial and district level in the regions. Two provincial coordinators have been already hired. A vertical monitoring system operations will be established. The Steering Committee for the program has been revised into a forum where Ministry's senior management can come together to discuss issues. Resp: client I Stage: Prep I Due Date : ongoing| Status: ongoing 3 Project Risks 3.1 Design Rating: Moderate Description: Risk Management: * Scaling up of a cash transfer scheme represents a challenge A gradual and phased approach will be adopted to the safety net development and to the in the environment with limited policy implementation transitioning of responsibility for core functions from PCUs to the Ministry. In addition capacity capacity. building is a significant component of the project and the project will build links with other * Implementation of the proposed soft conditionality (co- Government-wide capacity building programs. The financial sustainability of the program has been responsibility) may pose an operational challenge given low taken into account in the design of the targeting to allow for gradual scale-up if the evaluations show capacity on the ground. it to be worthwhile. * Building a system in a low capacity environment that is - Resp: client I Stage: Prep I Due Date : ongoingl Status: ongoing facing sustainability challenges (financing, reliance on Risk Management: PCUs) The team is coordinating with the Health technical team in design of options for nutrition awareness conditionality to incorporate relevant experiences from Afghanistan and from the region and to ensure feasibility of the program. Facilitating Partners (FPs) employed under the program will continue playing a key role in implementation. - Resp: Bank I Stage: Prep I Due Date : 10/31/2013 Status: Not yet Due 3.2 Social & Environmental Rating: Moderate * Minor environmental risks associated with physical Risk Management: renovation of existing government buildings Physical rehabilitation of existing government buildings will be guided by a project specific ESMF * Lack of complaint handling mechanism and or inefficient developed by client. No land acquisition will take place under the project. complaint handling mechanism may lead to dissatisfaction - Resp: client I Stage: Prep I Due Date : ongoingl Status: ongoing Risk Management: Grievance and appeals systems will be strengthened and made operational through the AF - Resp: client I Stage: Prep I Due Date : ongoingl Status: ongoing 27 3.3 Program & Donor Rating: Substantial Description: Risk Management: * SP has not been on top of the Government reform agenda The project will support MoLSAMD in bringing SP on the agenda of the Goverment through (i) and there have been constant shifts and changes in the widely publicizing results of the ASPP program, (ii) building capacity within the ministry to monitor priorities of the Government. SP interventions.. There is also a social protection working group created under the Ministry with * Lack of coordinated approach to the poverty alleviation support of the project to bring together Development Partners and the Government to discuss and effort both within the government and with the donors, better harmonize approaches to Social Protection. resulting in inconsistent policies and administrative - Resp: client/Bankl Stage: Imp I Due Date: 12/15/20131 Status: Not yet Due inefficiencies. Risk Management: The Bank's team has been working with the key donors in the sector to promote a coherent unified approach to design and implementation of poverty alleviation interventions. - Resp: Bank I Stage: Prep I Due Date : continuous I Status: continuous 3.4 Implementation & Sustainability Rating: Substantial Description: Risk Management: * Prevailing focus within the Ministry on the Project vs. the MoLSAMD will establish a new Unit within its structure dedicated to the functions of Program, undermining importance of the proposed implementation and monitoring of the proposed new and similar targeted interventions. The project intervention and threatening its sustainability. will provide capacity building to that unit and support the Ministry in linking with the CBRF * Lack of fiscal capacity to sustain the program in the medium program to bring in qualified technical specialists. to long run. .- Resp: client I Stage: Prep I Due Date: ongoingl Status: ongoing * Lack of a broad buy in for the new targeting and delivery Risk Management: platform and underutilization subsequent to the project To the extent that the impact of the new targeted intervention is substantive and operations are implementation. transparent, it is anticipated that fiscal priorities of both the Govemment and major donors in poverty alleviation would shift towards such interventions supported by well-established implementation mechanisms. The current intervention has been costed out to ensure affordability if scaled nationally. - Resp: client/Bank| Stage: Imp I Due Date : 12/31/20131 Status: Not yet Due Risk Management: A special dedicated Unit within the MoLSAMD will be in charge of operating the new platform, conducting information campaign with results for the key stakeholders, and coordinating with other government agencies and development partners on building synergies in implementation of various safety net interventions. - Resp: client I Stage: Prep I Due Date : 12/31/20131 Status: Not yet Due 4 Overall Project Risk: Substantial 28 Annex 3: Project Costs Afghanistan: Safety Nets and Pensions Support Additional Financing (Estimated cost breakdown) AF Project Cost by Activity Part 1 (Pension) 4,000,000 Consulting Services - specialized national and international consultants 700,000 and firm(s) Works - renovations of PD and M&D premises and select DoLSAMDs 1,800,000 Goods - hardware, equipment, furniture, power generators, etc. 1,200,000 Non Consulting Services - including start-up finance charges for pension 300,000 delivery, pensioner card printing, manuals and forms printing, etc. Part 2 (Safety nets) 5, 400,000 Consulting Services - s ecialized national and international consultants IF 800,000 and firms (including 3' party technical/financial auditor; Facilitating Partners; MIS Firm, etc.) Non Consulting Services - delivery costs of CTs, printing guidelines and 500,000 forms, etc. Goods - hardware, equipment, furniture, power generators, transportation 600,000 for provincial DoLSAMDs Benefit payouts of CTs, including compensation of up to $400,000 for the 2,800,000 overrun of costs in this category under the original project Consulting Services - CTs evaluation (impact, targeting and operational 700,000 evaluation) Part 3 (Capacity building and project management) 3,100,000 Consulting Services - National consultants (including PST staff and 1,200,000 provincial coordinators)) Consulting Services - National and International consultants (including 600,000 policy advisors) Goods - equipment, furniture, etc. 500,000 Training and Workshops 400,000 Operating costs (utility charges, travel, printing, stationery, etc.) 400,000 TOTAL 12,500,000 29 Annex 4: Key Changes in Design Parameters of Cash Transfer Program Afghanistan: Safety Nets and Pensions Support Additional Financing Design Original (2011) Issues identified Proposed change (2014-2016) Parameter Objective Smooth seasonal One-off payment has limited Smooth the food consumption of fluctuations in and short-term effect on poor poorest families through periodic consumption by families who suffer from income support, and enable them providing a one off periodic food shortage. to better cope with shocks, cash support to poor Beneficiaries noted that including seasonal. Expand families around the periodic cash support would gradually to provide the poor with winter period support their food access to opportunities (e.g. HD). consumption and accumulation of assets. Eligibility Poor rural families Too many categories and Poor families with mothers/female criteria with children (0-t14 vague concept of the "poor" guardians and their under 5 years), disabled, at village level make it children. widows, elderly (+ 65 difficult to communicate years) who are objectives of the program to dependents. the villagers. Targeting Targeting was done at No clear ctena for the Focus on the provinces with method two levels: selection of provinces and poverty rate above 50 percent. districts, as the program Districts within the provinces will Geographic: rural, expands this could be be selected on the basis of geographically and politically disputed in the considerations of security, ethnically diverse absence of clear selection accessibility, no other similar provinces were criteria, interventions, and with the selected. participation of provincial administration. District selection will shift to use poverty maps At the household upon their availability. level: mix of Significant level of inclusion For household selection: Two categorical and and exclusion errors methods will be tested to identify community targeting, identified in the targeting poor families: where the community evaluation. representation in the a) Community targeting with process was limited to improved measures to ensure the existing CDCs. wider community participation in the process, and including checks and ebalances in the identification CDC produced a short list of families and did and verification processes; a ranking based on b) Proxy means testing using multiple NRVA consumption poverty indicators (as predictors from the latest simplified proxy- NRVA. means testing) 30 Design Original (2011) Issues identified Proposed change (2014-2016) Parameter Coverage 10% of the village Feedback from the Around 20% of the village within families communities indicated that families (the poorest ones). communities effective prioritization of the 10% families in the context of the prevailing poverty is unrealistic. Recertification No provisions so far. A process of verifying Two-year re-certification cycle is Only single cycles of continuous eligibility is envisaged, to ensure that only the program in select required in the areas with eligible families continue locations repeated cycles of payments. receiving the benefit. Public Responsibility of Lack of clear understanding Revised Operational Manual awareness CDCs and FPs but no of objectives and processes prescribes specific messages to be clear messages for the of the program by the delivered as part of the community communities. information campaign for the villagers and clearly defines roles and responsibilities at every stage of the campaign. Appeal and Narrow process There was no appeal Revised Operational Manual grievance focusing on the grievance mechanism to defines types of grievances, mechanisms misappropriation in ensure fair identification of prescribes specific process for payments program beneficiaries, each type, and responsibilities at different stages of the selection/delivery process. Payment One-off payment One-off payment has limited The program will implement frequency during the lean season effect on poor families who repeated cycles of payments in the in a single cycle of the suffer from periodic food same communities and same program in each shortage. Beneficiaries beneficiaries to enable poor selected area. articulated that more families predict their income and frequent and predictable improve consumption of food and payments will help them basic items. build basic asset, and invest in health! education The program will test delivery twice a year is some areas (before and after the winter); and 3 times a year in other areas. Frequency of payment will be evaluated against the impact on food consumption and asset accumulation, as well as administrative cost. Benefit level $40-200 one-time In most cases benefit is high Two levels of annual benefit payment per family for a one-time payment, (paid in installments) depending on number close to $200. This raised of dependents concerns on the potential risks of gaming and elite (i) 80 USD for families with 1-2 capture. children under 5 31 Design Original (2011) Issues identified Proposed change (2014-2016) Parameter (ii) 125 USD for families with 3 or more children under 5 This is estimated to cover about 20% of the minimum food basket of the respective families for 5 months. Payment Cash delivery through Potential conflict of interest The project will test two payment delivery CDC is a major concern whereby methods: mechanism CDCs were responsible for the selection of beneficiaries a) Continue with the current as well as the delivery of method but with more benefits; in addition to involvement of the local security concerns of carrying authorities! FPs, and smaller large cash at once, amounts to be carried at once; b) The project will test other options including the use of mobile and/or branchless banking, through oayment service providers. o 12 Modern Government to Person (G2P) payment systems, including mobile payment services, are already being piloted in Afghanistan, and they spread at a significant speed (in 2012 there were 1.2 m registered users for M-Paisa, while the coverage of the mobile networks is estimated at 85% of population). The Safety Net component will liaise in this regard with the Bank team working on the Financial Sector Rapid Response Project, which supports a modernized payment system that will allow the development of alternative payment mechanisms, such as card and mobile payments, and aims to facilitate payments across the country, including remote areas, thus reducing the need to physically move cash. 32 Annex 5: Targeting Approaches Afghanistan: Safety Nets and Pensions Support Additional Financing Background 1. In the initial rounds of the cash transfers under the original project, the original targeting mechanism of the program was based on a combination of community-based targeting and a simple form of categorical/proxy means testing without weighing the different indicators. It was a two stage approach where community (as represented by the existing CDCs)13 first produced a short list of the potential beneficiaries (30% of the village families as perceived to be the poorest) and then would be subject to a formal ranking system whereby the 10% of the villages with the lowest scores were selected. The targeting evaluation revealed several deficiencies of the original design resulting in significant inclusion and exclusion errors. On the basis of the results, the Ministry introduced a number of important changes to design of the targeting and beneficiary selection, focusing in particular on: (i) clearer definition of the "poor"; (ii) improved awareness generation mechanisms and better training to the communities on the objectives and mechanisms of the program; (iii) increased role of the wider community in beneficiary identification and selection process, including greater participation of female and elderly members in the decision making as well as establishing transparent appeal mechanisms; (iv) putting in place check-and- balance mechanism for the selection by having a selection committee and a verification committee. 2. The project will continue using the current community based targeting in 50% of the targeted communities and will introduce the proxy means test (PMT) approach in the other 50% communities. Both approaches will be evaluated for their performance in the identification of the poorest families (income poor). In the following sections, the current community based targeting approach is described in details, whereas the PMT approach is described briefly as the detailed methodology and its implementation process will be further elaborated in the next few months. Current Approach - Community Based Targeting 3. The changes in the approach were introduced in the last round (Fall 2012). The changes includes: a) selection of the poorest 20% of the villages instead of 10%; b) selection involves two committees that get formed at the village level: Village Selection Committee (VSC) and Village Verification Committee (VVC); and c) no scoring or ranking is involved, rather the committees agree on the 20% poorest in an open community forum. These committees have representatives of CDCs, respected village elders like Malik/Arbab, Mullah, and female representatives with the total of 5-8 members. The VSC and VVC are formed in a public gathering of the village and facilitated by CDC. VSC initially prepares a list and identifies the eligible families with children facing hunger14 and displays the same in public. The list of the eligible families get verified and authenticated by the VVC in an open community gathering. The representatives of VSC and 1 Community Development Committees established under the National Solidarity Program. CDCs consist of elected members of the community. 14 "hunger" is defined as not having sufficient food during meals or skipping a meal due to unavailability of food in the household. 33 VVC then work together with the Facilitating Partner (FP) on the collection of detailed information of the beneficiary families. 4. The following is an outline of the current beneficiary selection and enrollment process: a) FP will form clusters of villages/CDCs of neighboring villages of 4-10 into one cluster. b) FP calls a meeting of the Cluster CSC leaders and provides briefing on the program and all steps involved. At this point the Tripartite agreement is signed (MoLSAMD/FP/CDC). c) CDC leaders return to the village and initiate the information and awareness campaign about the program. At this point, announcement of the Village Selection Committee (VSC) and Village Verification Committee (VVC) are made and nominations are proposed as per the standard required composition. The date of the first meeting of the VSC announced. (In select villages, depending on capacity and accessibility of CDC, FP may be present at the time of this first public meeting). d) Village Selection Committee (VSC) should have 8 to 10 members and be comprised of: (i) CDC members and (ii) nominated and respected members of the community as follows: at least 4 members of CDC, at least one respected member or elder of the village, one Mullah/Imam, at least two female representatives (can be same as members of CDC), and at least one literate member of the community - all willing and able to perform the functions of VSC for the proper implementation of the Program. In smaller villages, VSC may be comprised of a smaller number of members (5 to 6) but with the same categorical representation of members. e) The Village Verification Committee (VVC) must be comprised of 6 to 8 members (4 to 5 members in small villages). At least 2 members will be members of the CDC; at least two members shall be respected members or elderly of the community; at least two members must be female; at least one literate member of the community. The members of the VSC cannot be the members of VVC (exception may be made for the literate member of the community if only one is available to support both tasks). f) VSC meets at an announced location and draws the initial list of the proposed beneficiary families from the community. The meeting is aided by a literate member of the community who registers the decision of the meeting. g) The list is publicized via public display and/or announcement in an open (prayer) meeting. h) VVC announces the date and time of the public meeting to finalize the list. i) On a scheduled date, VVC, with support of the CDC organizes the public meeting of the community. In this meeting, the list provided by the VSC is reviewed, discussed, and finalized. New names may be added and some existing names dropped, all to stay within the quota of beneficiaries for the village. It is anticipated that all members of the community can freely participate in the open meeting. In select villages, FP may be present at the meeting to clarify the process, aide VVC in mobilizing the community for the meeting, and keep record of the outcomes. j) The final list is then secured by the VVC and transferred to the FP. FP will also collect the lists of VSC and VVC members. 34 k) FP, aided by one rep of VSC and one rep of VVC initiates the beneficiary enrollment by personal home visits to collect data about the families (mothers and children). If the FP is present in the village for the community meeting, it may initiate the enrollment the same day. The enrollment process should usually be completed in one day (a special enrollment form is used to collect family data). At this point, no rejection can be made by the FP; the families get enrolled as per the list. 1) All forms get collected, verified, and consolidated by the FP, and entered on an electronic database. m) Based on electronic records, all Financial Management forms get generated to initiate the payment process by the Ministry. 5. The Operations Manual also provides for the appeals and grievance process. As the first instance, the VVC serves the function of collection and verification of the appeals, which if not satisfied gets forwarded to the Ministry. Most appeals are anticipated to do with the issues of identified beneficiaries on the list who were not paid or not paid in full. The issues may also include beneficiaries who are better off members of the community. 6. Finally, the Ministry is working to develop and fully implement the spot check function where selective verification would apply to randomly selected communities and results feed into the subsequent cycles of implementation by potentially imposing penalties and/or providing incentives to the communities. Additional Approach to be tested - Proxy Means Test 7. Proxy means test (PMT) is a targeting method being instituted in a growing number of countries, especially in contexts characterized by informal economies. It has been found to be accurate for targeting the income poor internationally and in the region for large scale programs in difficult environments. For example, in Pakistan the national safety-net system (the Benazir Income Support Program) utilizes PMT. PMT also has the benefit of building a database of the poor in the country which can then be used for pro-poor targeting of other interventions including crisis response programming as is the case in the Yemen cash transfer program (The Social Welfare Fund).The PMT method generates a score for each household based on fairly easy to observe characteristics of the household such as the location and quality of the dwelling, ownership of durable goods, demographic structure of the household, and, possibly, occupations of adult members. The indicators used in calculating this score and their weights are derived from statistical analysis (usually regression analysis or principal components). In general, when programs are targeting the poor, the indicators are selected based on their observed correlation with a welfare indicator, estimated using survey data. 8. In most of the cases household incomes or consumption expenditures are utilized to measure welfare, and the formula is derived from a regression model15: ln(Y)= c + PX + c, where 15 When the survey data does not comprise the necessary information to allow the construction of an income or consumption aggregate, or when the program intends to target beneficiaries based on more "complex" definitions of "deprivation", other techniques may be used, such as Principal Component Analysis - PCA (or other similar approaches). For further references on PMT see Grosh and Baker (1995), Coady, Grosh and Hoddinott (2003), Castaneda and Lindert (2005), Sharif (2009), Grosh, del Ninno, Tesliuc, and Ouerghi (2008). 35 Y is the welfare indicator and X represents a set of easy to observe, measure, and verify indicators measuring household or individual characteristics which correlate with welfare. The indicators' weights for the PMT formula are constructed from the estimates of the P coefficients. In brief, it is an empirical formula, derived from the observed relationship between observable household characteristics and household welfare. It works like a poverty assessment tool consisting of three elements: a set of variables (poverty indicators or predictors), a set of weights associated with these variables, and a decision rule to determine whether a household is predicted as poor or not poor. 9. The indicators (usually not more than 10-15) are collected for each household through a questionnaire or form (sometimes called "poverty scorecard") and the information is usually partially verified by either through a visit to the home by a program representative, as in Chile's unified family subsidy (Sancho 1992) or by having the applicant bring written verification of part of the information to the program office, as done in Armenia (World Bank, 1999). 10. Under this approach, an information campaign will be implemented to inform the community of the program and announcing the dates for applying to the program. A survey firm will be contracted to collect household level data of all applicants. The survey questionnaire will be developed using the NRVA data to derive to a set of 15-20 proxy indicators. The survey firm is also responsible for data entry. CDCs will play an important role in encouraging poor families to apply to the program, and the FPs will support the information campaign. 11. Once the PMT formula generates the beneficiary list (poorest 20%), the initial list will be disclosed at the community level and an appeal period will be announced. Any appeals will be reviewed and information from the appeal process will feed into the finalization of the beneficiary list. 12. The final list is then announced to the selected families and the enrolment process starts. 36 Annex 6: Implementation Arrangements Afghanistan: Safety Nets and Pensions Support Additional Financing 1. Under the leadership of the Minister of the MoLSAMD, the Ministry will have overall implementation responsibility for the project through the relevant Deputy Ministers (DM) and General Directorates. Key senior management reporting to the Minister who will be engaged include the DM/Pension on pension issues, the DM of Social Affairs on issues related to safety nets, and the DM/Martyrs and Disabled. 2. The Project Steering Committee (PSC) originally established under the current project is now being re-structured and simplified 6. Lessons from the early stages of project implementation showed that the original oversight arrangement was not effective. With the Ministry rapidly internalizing and taking full ownership of the activities supported under the project, the proposal is to now consolidate the ministerial oversight function and amend the composition of the PSC as follows: the Committee is to be chaired by the Minister of MoLSAMD (or his/her nominee) and include DMs of Social Affairs, Labor and Martyrs and Disabled, and a representative from the MoF. Further, the DMs can invite their respective Director Generals (DGs), Directors and relevant technical staff as needed to the committee meetings. The PSC has responsibility for overall guidance, support and oversight of Project implementation, including, the coordination of inter-sectoral agenda/issues, and approval of the Safety Net Program's Plan, annual implementation plans, budgets, and quarterly progress reports. Detailed functions will be laid out in the revised Project Implementation Plan (PIP). 3. The direct implementation responsibility under the Pension component will be with the Pension Departments of MoLSAMD (PSPP and MDPP) with operational support from the PST. Under the safety nets component, the newly established Safety Nets Unit, under the Director of Social Protection will be in charge of the safety nets interventions with operational support from PST. The Safety Nets Unit will be staffed by at least 6 staff providing day to day support, including at the provincial level. The overall technical work will be supervised and coordinated by the corresponding three Deputy Ministers of Labor, Social Affairs, and Martyrs and Disabled. 4. The project will also provide specialized technical assistance support in the form of advisers to DMs and DGs as needed. 5. At the provincial/district level, and in the particular provinces where the project is expected to be operationally active (particularly through work on safety nets), the DoLSAMD will play a central role in providing implementation support with the help of provincial coordinators to be financed by the project. These provincial coordinators will work closely with the Directors, General Directorates and the PST in Kabul. 16 Earlier the PSC comprised of the Deputy Ministers or authorized representatives of MoF, MoWA (Ministry of Women's Affairs), MRRD (Ministry of Rural Rehabilitation and Development), IARCSC (Independent Administrative Reform and Civil Service Commission) and MoLSAMD. 37 6. The Project Support Team (PST) will provide day-to-day administrative support and manage all activities under the project. The PST is essentially a reconfiguration of the earlier PCU structure based on lessons learned to date from implementation and with a view to strengthening overall project coordination and implementation under the proposed Additional Financing. The PST structure consists of the PST General Manager, component managers and specialized local consultants supporting different program functions. 7. The PST includes an Operations team (FM Specialist, Procurement Specialist, etc.) and a Management Support Team (Pension Manager, Safety Nets Manager, and MIS Manager). The PST will serve as the secretariat to the PSC and will work on daily basis with Directors and General Directors, and report to the three Deputy Ministers. It will focus on strengthening overall operational support to the project including on FM, Procurement, monitoring and on overall management as well as reporting functions. Additional national and international consultants will also be provided to the PST as needed. 8. The PIP will be revised to reflect the new organizational structure of PST, modes of coordination with the Ministry, lines of reporting and supervision between the project and the Ministry senior staff. It will also reflect the revised TORs for the PSC as well as Procurement and Financial Management manuals for the project. Donor Coordination in the SP sector: 9. In addition to the World Bank, a number of other donors and UN agencies including the EC, UNICEF, WFP and ILO have been working closely with MoLSAMD on various Social Protection issues. Each agency focuses on a specify area within the broader SP sector. For example, the EC has been supporting the Ministry on institutional capacity building, including on strategic planning and social care services and developing curricula for social workers. UNICEF supports the Ministry mainly on child protection issues. WFP coordinates with MoLSAMD on its work on transfers (cash and in kind). ILO has been actively supporting the Ministry in the area of the labor law formulation and regulations, while KoICA provides support to MoLSAMD on skills development and on TVET. 10. MoLSAMD has also recently taken a number of steps to expand on its relations with the development partners (DPs) and also concluded two rounds of consultation on its new strategic plan (2013-2015) with key DPs including the World Bank. 11. Given this increasing strategic focus on SP programs in the country, a new Social Protection Working Group (SPWG) is being set up under the auspices of MoLSAMD to serve as a platform for bringing together government and other key players in the SP sector in Afghanistan" 12. The primary objective of the SPWG is to engage in technical discussions on safety nets and foster greater dialogue on the evolving SP agenda in Afghanistan in this area. The SPWG is 17 this includes key UN agencies engaged in SP activities such as WFP and UNICEF, and other bilaterals and government ministries currently working in or likely to engage in SP activities in the future. 38 chaired by the Minister of MoLSAMD (or his/her representative) with support from the General Manager of the PST. It has terms of reference that has been approved by members of the group. 13. The SPWG had its first meeting on March 19, 2013, with all key DPs coming together to endorse this initiative. The group plans to convene on a quarterly basis to discuss various issues on the SP agenda. 39 Annex 7: Economic and Financial Analysis Afghanistan: Safety Nets and Pensions Support Additional Financing 1. Three types of outcomes are expected from the interventions supported under the project: (i) significant fiscal savings for the two pension schemes assisted by the program (PSPP and MDPP); (iii) more efficient programs delivery and accountability; and (iii) an income effect for families receiving cash transfers. Given that, the tools of traditional economic analysis (estimation of the internal and external rates of return of specific sub-projects) do not apply. Rather the analysis focuses on quantifying the expected benefits from fiscal savings against costs in the case of the pension schemes, the targeting performance of the safety net, and the expected impact on poverty for the safety net program beneficiaries. 2. The activities under the pension schemes component are expected to result in significant savings. The annual spending on benefits of the PSPP is currently estimated at 4.6 billion AFN (approx. 88 million USD), while the corresponding figure for MDPP is 3.5 billion AFN (approx. 67 million USD). Both schemes use paper based systems and face difficulties in maintaining clean and updated records of beneficiaries. This translates into leakages, including due to ghost beneficiaries. The Pension Department (PSPP) estimates the total number of such beneficiaries at about 10 percent of the existing caseload, corresponding to an annual loss of about 8.8 million USD. Assuming a similar share of ghost beneficiaries on the MDPP payrolls, the corresponding leakage is estimated to about 6.7 million USD per year. The introduction of modern Management Information Systems combined with the implementation of a beneficiaries census for each scheme will enable the clean-up and update of beneficiaries records, leading thus to savings estimated at about 10 percent of the current spending on benefits. Moreover, the improved processes (including automation) for registration and updates supported by the project will ensure the maintenance of clean records while significantly reducing the administrative costs, as well as the risks of error, fraud and corruption. Without taking into account the savings resulting from the reduction in the administrative costs and the benefits of improved governance and transparency of the PSPP and MDPP systems, and assuming a constant nominal budget of the two pension schemes, the estimated savings from cleaning up the beneficiaries records accrue to a total of 15.5 million USD in the first year after the activities are finalized, for an investment of about 3.5 million USD in the new systems. Adjusting for inflation over the project life this translates into a net benefit of two dollars for each dollar spent. 3. The targeting performance of the Safety Net pilot will improve. The proposed changes in the targeting mechanism of the safety net pilot are expected to lead to increased efficiency gains. First, by focusing on the poorest provinces (those with poverty rates above 50 percent based on the 2007/08 NRVA estimates) the risks of leakages are considerably reduced. Second, the focus on families with children 0-5 y.o. will reduce the discretion at local level, and thus the sources of inclusion errors. Third, the introduction of clear selection rules, including through a Proxy Means Test (PMT) instrument targeting the poorest 20 percent of families, is expected to improve the overall targeting performance of the program. Based on the regional and international experience the share of the poor in the total number of beneficiaries may vary between 30 and 65 percent when using a PMT as targeting mechanism. Using a scenario of 60 percent accuracy of the PMT instrument (i.e., ability to accurately select 60 percent of beneficiaries from the bottom 20 percent of the welfare distribution) the overall targeting 40 performance of the safety net intervention (combining the three targeting mechanisms: geographic, categorical, and PMT) is expected to improve significantly. According to this scenario the percentage of beneficiaries coming from the poorest quintile will increase from 25 percent (Targeting Survey, 2011) to 60 percent in the targeted provinces. At the same time, due to the combination between PMT and geographic targeting it is expected that about 70 percent of beneficiaries will come from the poorest 20 percent of population at national level (based on simulations using the 2007/08 NRVA). This improvement in the program targeting performance is expected to translate into about 60 percent reduction of leakages compared with 2011. 4. The estimated poverty impact on beneficiaries is positive. About 36 percent of the Afghan population is chronically poor, and some 20 percent are vulnerable to external shocks. Poverty rises to some 43-46 percent during the winter season between November and March. Poor or at-risk individuals are mainly to be found among large families, single-head households, households with migrant workers, the unemployed and nomadic herders (Kuchi). Food insecurity and poor nutrition are significant challenges for the country. Chronic malnutrition among Afghan children is one of the highest in the world: close to 60 percent of Afghan children under age five are stunted (chronically malnourished) and one-third are underweight. Undernourished children who fall sick are much more likely to die from illness than well-nourished children. Furthermore, undernourished children under age two are at high risk for impaired cognitive development, which adversely affects the individual's learning ability, the efficiency of the country's investments in education and skills development and national productivity and development. 5. The safety net pilot will continue to focus on the vulnerability associated with seasonal factors, in particular those characteristic to the winter season. The size of the benefit will be set at 20 percent of the food poverty line" for two types of families: families with one or two children under five years old, and respectively with more than two children under five. The benefit level is designed to protect food consumption over a period of five months (winter-spring) reported to be the most difficult for the poor (Targeting Survey, 2011; Operational Evaluation, 2013). Share of Households Reporting Not Enough Food to Eat, by Month 60 50 40 30 20 10 0 Note: Red bars indicate winter months. Source: Targeting Evaluation Report based on the Targeting Evaluation Survey (2011), female questionnaire. SA higher benefit level could lead to security risks related to payment delivery, fraud and corruption, as well as community pressures for redistribution (Operational Evaluation, 2013). 41 6. Due to inherent challenges in payments delivery, the benefits will be delivered in two installments - before and immediately after winter. Simulations based on two quarters of the NRVA (winter and spring) show that the proposed structure and level of benefit will reduce the food consumption shortfall of beneficiary families by 40 percent (from .32 to .19). Several assumptions were made in order to estimate the possible poverty impact: first, it was assumed that the benefit will not be redistributed within the household, but will be used within the beneficiary families; second, it was assumed that the benefits will be used to buy food (which is not always the case, since some families may buy assets or clothes); third, based on the 2013 Operational Evaluation, it was assumed that even if the second installment will be paid at the end of winter families will rely on future payments and will borrow money to buy food for the winter period. Based on these assumptions the reduction in the food poverty rate of beneficiaries is estimated at about 10 percent (from 80 to 72 percent). In reality, since the survey data (NRVA 2007/08) used to estimate the poverty impact is significantly affected by the 2007/2008 food crisis and thus reflects a higher food poverty rate than in "normal times", it is likely that the poverty impact of the safety net intervention will be higher. 7. The proposed design of the intervention is estimated to cost about 1.3 dollars for one dollar reduction in the food consumption shortfall, without taking into account the administrative costs of the program. The latter are difficult to estimate at this stage, especially since start-up costs are expected to represent a significant share of the total administrative costs. If the pilot would be scaled up across the ten poorest provinces, it would cover about 108 thousands households for a cost of about 12.5 million USD (650 million AFN), without taking into consideration the administrative costs. The scaling up would translate into a 54 percent coverage of the poorest 20% of population in these provinces. 42 Annex 8: Financial Management Assessment and Action Planl9 Afghanistan: Safety Nets and Pensions Support Additional Financing Introduction 1. The overall FM arrangements in Afghanistan are managed by the MoF centrally through AFMIS (Afghanistan Financial Management Information System). MoF is responsible for payments, making withdrawal applications, recording transactions, preparation of annual financial statements and other functions for all the projects. These country level FM arrangements are separately supervised. The implementing line ministry, supported by the Project Support Team (PST)20 is responsible for project execution, submission of M16 to MoF for payments and submitting monthly/quarterly information reports to the Bank. The Project (AF) 2. The project development objectives are: (i) improve the administration of the public pension schemes; and (ii) develop administrative systems for safety nets interventions, with focus on targeting and benefit payment delivery, while delivering cash benefits to the poorest families in targeted districts. ISR Rating 3. Based on the FM review findings noted below, the project financial management arrangements are Moderately Unsatisfactory. Implementation of the FM time-bound Action Plan of this report will positively reflect on the project FM rating. Time-bound Action Plan 4. The project is not compliant with the legal agreement for no acceptable IFR was submitted to the Bank for the QIII SY1391 which was due February 5, 2013. The project doesn't monitor transfers to provinces to ensure that acceptable supporting documents are provided for the transferred amounts and those such documents are reviewed and filed by FM before claiming them to the World Bank. 5. Therefore, the following time-bound Action Plan was agreed with the project during the Additional Financing pre-appraisal mission (March 16-25, 2013) and were confirmed during appraisal which was concluded on April 9, 2013: concluded on March 25, 2013. 19 The FM assessment was carried out in February 2013 20 Previously the "Project Coordination Unit - PCU". 43 6. A qualified Senior Financial Consultant needs to be hired by the project before disbursement against expenditure under components 1, 2 and 3 (a). The Consultant will carry out the following tasks: a) Reconcile the project books with client connection and identify the differences. This needs to be finalized before disbursement from expenditure categories 1, 2 and 3 (a); b) Submit to the Bank acceptable IFR report for QI of FY 1392. This needs to be finalized before disbursement from expenditure categories 1, 2 and 3 (a); c) Procure and install an accounting and reporting system for the project where project transactions are recorded using double entry. The financial consultant will prepare the system chart of accounts to generate IFR and produce project financial statements through the system. This needs to be finalized before May 30, 2013; d) Fixed assets procured under the project are all tagged and registered in a fixed asset register within one month after AF effectiveness; and e) Update the FM manual that reflects all the above within one month after AF effectiveness. 7. Based on the satisfactory performance of the above tasks by the Senior Financial Consultant, he/she can be maintained to manage the project FM aspects. Staffing 8. The PST staffing is comprised of a Project General Manager, Safety Nets Manager, Pension Manager, MIS Manager, Financial Management Specialist, Financial Management Assistant, Procurement Specialist, Procurement Officer, Administrative Assistant, HR Officer, translator and guard. 9. However, the competency of the financial management team is found inadequate as reflected in the difficulty the team is finding to reconcile project data with client connection where unexplained differences are noted, as well as the inadequate quality and timeliness of the FM reporting. Budgeting 10. The project follows the Afghanistan budget process. The project budget for the year 1391 is US$ 3.2 million while disbursements for the same year are expected to be within the range of US$ 2.6 million. According to the explanation provided by the project team, difference is mainly attributed to the lagging behind of some safety net payments which are expected to catch up during the coming fiscal year. Accounting 11. The project follows cash basis of accounting, which is in line with the accounting basis followed by the MoF. Given the centralized system of Accounting and Record keeping maintained by the Ministry of Finance, the project maintains a parallel record in the form of excel cash book for all its transactions. 44 12. Recommendation: The project will hire a Senior Financial Consultant who will be responsible for the procurement and installment of an accounting and reporting system according to a ToR agreed with the Bank. The envisaged system should enable the project FM team to record transactions using double accounting entries and produce IFRs and financial statements that reconcile with client connection. Internal Controls 13. Disbursement Cycle: The project disbursement cycle is managed by the MoF and follows the same applied procedures at the country level. 14. At the project level, a soft copy of cash transactions is maintained on the project's FMS computer. In addition, no reconciliations between client connection, cash book and bank statement are maintained and differences are noted. 15. Petty Cash: The project needs to make sure that its petty cash imprest does not exceed $5000 at all times and that cash transactions are properly reviewed and recorded with the project cashier maintained in a safe box and transactions are recorded in a separate log maintained by the cashier. 16. Fixed Assets: Although the project maintains a fixed assets register, tagging of assets is still in progress to establish a link between assets recorded, assets purchased and assets location. The fixed assets register maintained by the project is in softcopy and doesn't show evidence of review. The project is currently working on tagging and registering all fixed assets. Flow of Funds 17. Flow of Funds arrangements of the project are through Designated Account in DAB with maintaining authorization of checks, as indicated in the internal control section above, and WAs at the MoF. The project needs to reconcile its DAB account not only with its books account but also with client connection on monthly basis. Such reconciliations need to be prepared and reviewed following proper segregation i.e. prepared by the FM assistant, reviewed by the project FMS and approved by the project General Manager. 18. For Safety-net payments at the provinces the following mechanism is used: * General community awareness is carried out by FP through CDCs members; * Two committees are selected by community: VSC (Village Selection committee) and VVC (Village verification committee). These supporting committees must have a Masjid Mullah and female member; * VSC prepares the list of beneficiaries from each village; the list is verified by the VVC, and when the list is final, it is announced in each village; * The final list is subject to house-to-house survey by FP; * FP prepares SNF-0 1 form with the selected family details and enters the data on the project MIS for the project Safety net team in Kabul to check and verify; 45 * Through the MIS SNF-02 is generated showing the payment entitled for each village beneficiaries; * Based on the SNF-02 form information and the authorization letter from the Minister, the project FM team prepares the M16 for payment; * The cash is transferred to Mustofiat account in DAB and the directorate office of Ministry in that province receives the funds from Mustofiat; * The funds are distributed by the CDC to entitled beneficiaries in the presence of Afghan intelligence/Police representatives, Ministry Provincial staff, FP and safety net provincial coordinators team; and * SNF-04 is received from each village beneficiaries with their signatories and submitted to the safety net team of the Ministry in Kabul. 19. It was noted during the FM review that the project FM team, after transferring funds to Mustofiats for payment through MI 6, do not review and file the supporting documents that come back from provinces after receipt of funds by eligible families. Therefore, it was agreed that the updated FM manual will further elaborate the steps for reviewing and filing the supporting documents. Additionally, the Project will contract an independent third party monitoring firm/agency to undertake semi-annual technical and financial audits of the cash transfer component. 20. The project FM team should ensure monthly reconciliations between book balance, bank balance and client connection are maintained, reviewed and approved. 21. The project FM team should monitor transfers to provinces and ensure that acceptable supporting documents are provided for the transferred amounts and that such documents are reviewed and filed by FM before claiming them to the World Bank. 22. As the project is having difficulty reconciling its balances with the Bank client connection records, it is recommended that a new Designated Account in DAB is opened for this Additional Financing to avoid carrying over the balances of the pilot project. Financial Reporting 23. Interim Financial Reports: The project didn't submit to the Bank acceptable IFR for the QIII 1391 for the project current FM officer is unable to reconcile the differences between the project records/DA and client connection. 24. Semi-annual technical and financial audit: As the safety net payments are planned to be made twice a year, the project will agree with the Bank before August 30, 2013 on the Terms of Reference of the semi-annual technical and financial audit of the cash benefits under component 2. The audit will be carried out after the payments are made and submitted to the Bank within a period of two months from the payments occurrence. 25. External Audit: The project external audit report for the year 1390 was received after its due date. The report was found acceptable. However, the main reason behind the delay was the lack of follow up from the project team on the audit issues to provide timely responses on the Management Letter points. 46 Action Plan 26. The following Action Plan (Table 1) was agreed with MoLSAMD to ensure improvement of FM performance: Table 1: Agreed time-bound FM Action Plan Action Required By Whom When Status 1. Project Management will 1. Before disbursement 1. Interviews hire a Senior Financial against components 1, 2 completed. Project Consultant to carry out the and 3 (a) Team is preparing following activities: the evaluation report and request for IDA no objection. a) Reconcile differences PST Management a) before disbursement a) Pending between project records, against components 1, 2 client connection and DA and 3 (a); statements; b) and submit acceptable IFR PST Management b) before disbursement b) Not due yet for QI of FY 1392; against components categories 1, 2 and 3 (a); c) Procure and install an Project FM/IPD c) by May 30, 2013 c) Vendor accounting and reporting selected, contract system for the project signing is awaiting where project transactions the FM consultant are recorded using double reporting to the entry. The financial job consultant will prepare the system chart of accounts to generate IFR and produce project financial statements through the system. Fixed assets procured under the project are all tagged and registered in a fixed asset register. This needs to be finalized within one month after AF effectiveness; d) Develop an FM manual Project FM/IPD d) one month after d) Not due yet that reflects all the above, effectiveness 2. The project petty cash Project FMcpIoD March 30, 2013 Done should not exceed $5000._________ 3. The project FM team Project FMS Regularly, after receiving Ongoing should monitor transfers to benefit payment provinces and ensure that documentation acceptable supporting documents are provided for the transferred amounts and that such_documents 47 Action Required By Whom When Status are reviewed and filed by FM. 4. The project FM team is Project Director/ Ongoing Ongoing required to closely follow FMS up on the external audit work and ensure timely provision of the annual audit to the Bank for compliance with the legal agreement. Disbursement Arrangements 27. The additional financing will be fully financed by IDA grant, inclusive of taxes. Table 2 below shows the allocation of IDA proceeds among the proposed disbursement categories. The closing date of the project will be June 30, 2016 with a final disbursement deadline four (4) months after the closing date. 28. During this additional 4-month grace period, project-related expenditures incurred prior to the closing date are eligible for disbursement or documentation against advances to the designated accounts. Disbursement will follow the World Bank procedures described in the World Bank Disbursement Guidelines and the Disbursement Handbook for World Bank Clients. Expenditure Category Amount of IDA Financing Grant Allocations Percentage (in US$ M) % (1) Goods, works, consultants' services, non-consulting 8.1 100 Services, training and workshops, and Incremental Operating Costs for Component 1, 2 and 3(a) of the Project21 (2) Goods, non-consulting services, consultants' 1.6 100 services, training and workshops, and incremental operating costs for Component 3 (b) of the Project (3) Pilot Benefits under Component 2 of the Project 2.8 100 Total 12.5 100 29. To ensure proper financial management capacity will be in place before project implementation commences whilst ascertain IDA funds will be available to the project to address 21 Incremental Operating Costs refers to operating costs of the PST incurred on account of implementation of the Activities, including vehicle rental and other transportation costs, office rental and maintenance, utilities, telecommunications, and other incident costs, office equipment and consumable supplies, bank charges and advertising costs, but excluding salaries of officials of the Recipient's civil service. 48 the FM capacity deficiencies, disbursement condition will be placed on disbursement categories (1) and (3) until the following are successfully addressed: * Appointment of a senior financial management consultant; * Reconciliation of disbursement information among project books, DA bank statements and disbursement records on the Bank's Client Connection;; and * Submission of acceptable IFRs for the Q1 of SL1392. 30. To ensure that cash benefits are delivered to properly identified eligible families and in an efficient and transparent manner, an additional disbursement condition will be placed on disbursement category (3) until the following is successfully addressed: * The Recipient has adopted the Safety Net Program Plan, including: (i) eligibility and selection criteria for the Beneficiaries; (ii) the form and size of Benefits and the targeting mechanisms; (iii) the administration modalities, including: Benefit delivery mechanism; verification system; monitoring and evaluation systems; management information system; inspection and technical supervision; and inter-agency coordination. 31. Summary Reports. Summary sheet with records evidencing eligible expenditures should be provided for payment against contracts for civil works valued at USD 500,000 or more; goods and non-consulting services valued at USD 200,000 or more; consulting firms valued at USD 100,000 or more and individual contractors valued USD 50,000 or more. Reports in the form of Statements of Expenditure will be used for all other contracts or expenditures, training programs, and incremental operating costs. 32. Designated Accounts: A single segregated designated account in US dollars will be opened at DAB with a ceiling of advance to the designated account up to four months' worth of project expenditures to be financed out of the funds in the DA. According to the practice in Afghanistan, the SDU will manage payments from and new advances/reimbursements to the DAs. Expenditure reporting on the designated account will be submitted on a monthly basis and requests for fresh advances will be made as needed. 33. Direct Payments. Third-party payments (direct) and Special Commitments will be permitted for amounts in excess of the minimum application size. All such payments require supporting documentation in the form of records (copies of invoices, bills, purchase orders, etc. 49 Annex 9: Procurement Arrangements Afghanistan: Safety Nets and Pensions Support Additional Financing 1. The World Bank funded projects have been operating within the interim procurement arrangements put in place under the Emergency Public Administration Project (2002) and with the institutions currently responsible for procurement functions, including the Afghanistan Reconstruction and Development Services. As part of the broader review of Afghanistan's Public Finance Management (PFM) system, the Bank carried out two assessments, in June 2005 and September 2007, of the procurement environment in the country based on baseline and performance indicators developed by a group of institutions led by the World Bank and OECD/DAC. 2. The first key issue identified through the procurement assessments was lack of ownership and lack of a procurement champion in the Government, which is a serious impediment to reform and to inter-ministerial dialogue. A second, related issue is the limited of capacity in line ministries, as evidenced by their inability to define and communicate effectively their desired functional specifications/terms of reference in their procurements. The lack of capacity is also evident in the local private sector-while the number of bids is reasonably high, there is a lack of understanding about how to apply public procurement rules. Government Reforms 3. A new Procurement Law (PL) was adopted in November 2005 that radically transforms the legal and regulatory framework. The Procurement Law was revised in July 2008 and amended in January 2009 and issued as a new Law by the Ministry of Justice and was published in the Official Gazette Number 957, 29.10.1387 (18 January 2009). The revised "Rules of Procedures for Public Procurement" have been issued as circular PPU/C027/1387 of November 18, 2009. General Procurement for Safety Nets and Pension Support Project 4. Procurement for the project will be administered in accordance with the World Bank's Guidelines: Procurement under IBRD Loans and IDA Credits dated January 2011 Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated January 2011 and the provisions stipulated in the Financing Agreement. In addition, the World Bank's Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants dated October 15, 2006 revised in January 2011 has been shared with the recipient. The World Bank's Standard Bidding Documents, Requests for Proposals, and Forms of Consultant Contract will be used. Civil works and goods following National Competitive Bidding (NCB) procedures shall be procured using the agreed Standard Bidding Documents (SBDs) for Afghanistan. It has been agreed by both parties that in the event of a conflict between IDA Procurement/Consultant Guidelines, as per Article 4 (2) of the Procurement Law July 2008 (Amendments in January 2009 incorporated) of the GoA, the IDA Procurement/Consultant Guidelines shall prevail. 50 Procurement of Works 5. Works procured under this project, would include: renovation of the Public Pension Department, renovations of the Martyrs and Disabled Department, and minor renovation of 3-5 regional Pension offices. The procurement will be done using the Bank's Standard Bidding Documents (SBD) for all ICB and National SBD agreed with (or satisfactory to) the Bank. Threshold for ICB civil works will be equivalent or more than US$ 5,000,000 per contract; threshold for NCB works will be less than US$ 5,000,000 per contract. Contract below USD 50,000 for civil works may be procured following shopping procedure as elaboration in the paragraph 3.5 of the procurement guidelines. Procurement of Goods and Non Consulting Services 6. Goods to be procured under this project would include: IT Equipment (Hardware and Software) PVC cards, Ribbon and Card Printing Machines for pension, vehicles, Furniture, Office Equipment, office Equipment, Generators, etc. 7. Procurement of the goods will be done using Bank's SBD for Goods for all contracts following International Competitive Bidding (ICB) procedures. National SBDs agreed with, or satisfactory to IDA, will be used for the procurement of goods following National Competitive Bidding (NCB) procedures. Shopping shall be in accordance with paragraph 3.5 of the Bank's Guidelines. Any contract estimated costing more than US$200,000 shall be procured following ICB procedures. Any contract estimated to cost more than US$50,000 equivalent and less than US$200,000 shall be procured following NCB procedures. Any contract estimated to cost less than US$50,000 equivalent shall be procured following shopping procedures. Goods that meet the requirements of paragraph 3.7 of the World Bank Procurement Guidelines may be procured following direct contracting procedures with prior agreement with IDA. Selection of Consultants 8. The proposed grant would finance several consultancy assignments. 9. Firms: The following consultancy firms will be hired under the project: Software System Development, Publicity and Awareness campaigns, Implementation of Surveys Facilitating Partner for implementation of Safety Nets, Baseline Evaluation Data Collection, Third Party Monitoring, among others as will be agreed in the updated procurements plans and in agreement with The Bank. 10. Individual consultants: Key managerial, technical, and fiduciary, individual consultants and advisors will be hired under the project. Hiring of managerial, technical, procurement, financial management and legal staff shall be prior reviewed by the Bank regardless of contract value. 11. MoLSAMD under the current project has hired national and international individual consultants. MoLSAMD will conduct a performance assessment for each consultant and will take in consideration the assessment results before deciding on renewals of their contracts. 51 12. Short lists of consultants. For services estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The selection methods applicable for consultants are QCBS, QBS, CQS, LCS, FBS, and SSS for firms as per Section V of the Bank's Guidelines for Individuals. The threshold for CQS will be less than US$200,000 equivalent per contract. Operating Costs 13. The operating costs which would be financed by the project would be procured using the implementing agency's administrative procedures, which were reviewed and found acceptable to the Bank. The operating costs will include operations and maintenance of equipment and vehicles, hiring of vehicles, office rent, costs of consumable, fuel, office utilities and supplies, Bank charges, advertising expenses, and cleaning and office help staff, but excluding any salaries and allowances of civil servants. Assessment Of The Agency's Capacity To Implement Procurement 14. MOLSAMD will have overall responsibility for all procurement under the project. 15. The current project has three procurement staff. The same staff will continue conduct procurement under the project. The procurement staff has received on the job training during working under the project on international and national procurement the on the job training enhanced capacity. 16. Moreover, MOLSAMD is one of the ministries which have been accredited by the Procurement Policy Unit (PPU) to handle procurement independently without going through ARDS. Therefore, keeping in mind the decree 45 of the president and to streamline the procurement units of the ministry, the current procurement staff will gradually be transferred to the MOLSAMD Procurement Directorate but will be working solely for Safety Nets and Pension Support Project. This will help to further develop capacity of the procurement directorate of MOLSAMD. 17. Based on the above capacity the procurement risk under the project will be Moderate. Procurement Risk Mitigation Monitoring Plan 18. MOLSAMD will ensure that all invitations for bid, EOls are given wide publicity using its own website, ARDS, United Nations Development Business UNDB and national newspapers. Further for individual consultants the REOI/vacancy notice will be published on the following websites www.ards.af\ www.acbar.org, www.devnetiobs.org and www.reliefweb.int 19. With regard to procurement complaints, MoLSAMD will be guided by Article 71-72 of Procurement Law-2008 and Bank Guidelines. MoLSAMD will inform IDA as soon as the procurement complaint is received and the final outcome subsequently MoLSAMD should have 52 system to register and monitor the receipt and resolving of complainants. The progress of such action will be reviewed by IDA during supervision missions. 20. MOLSAMD will prepare a Procurement Monitoring/Activity Schedule for Procurement of goods, works and Selection of consultant. The Monitoring/Activity Schedule shall be updated on a monthly basis. The above schedules will facilitate to monitor the time taken for procurement/selection activities and take remedial actions for delays. It has been agreed that all bid/proposal evaluations will be completed within: (i) 5-7 working days following shopping procedure; (ii) 15 - 20 working days following NCB/ICB procedures; (iii) 10 working days for individual consultants; and (iv) 15 working days for firms for REOI evaluation, 21 working days for Technical Evaluation Report (TER) and 20 working days to conclude the contract negotiations. There will be no more than 20% deviation between planed and actual procurement conducted under the project. 21. All the above indicators will be monitored during Implementation Support Mission for the project. Governance and Anticorruption (GAC) agenda 22. All the contract opportunities and contract awards will be widely published in the internet, ARDS website, and when required in the UNDB. 23. MOLSAMD will set up a system to ensure that staff/consultants who handled the procurement process/contract management/contract execution do not join the consultants/contractors. This will be reviewed during supervision missions. Other actions are: (a) implementing agencies' officials / staff to be alerted about any fraud and corruption issues; (b) bidders to be alerted against adopting fraud and corruption practices; (c) award contracts within the initial bid validity period, and closely monitor the timing; (d) take action against any corrupt bidder in accordance with law of the Government of Afghanistan; (e) preserve records and all documents regarding public procurement, in accordance with the Procurement Law provisions; (g) publish contract award information in UNDB online, ARDS's website and agencies' websites within two weeks of contract award; (h) ensure timely payments to the suppliers/contractors/ consultants and impose liquidated damages for delayed completion and, (i) enforce a procurement filing system. Procurement Plan 24. The Borrower, at appraisal, developed a Procurement Plan for project implementation that provides the basis for the procurement methods. This plan has been agreed between the client and the Bank's Task Team on April 16, 2013 and is available at the PST office. It will also be available in the Project's database and on the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Frequency of Procurement Supervision 25. There will be two Implementation Support Missions per year, in addition to the usual ongoing prior review supervision to be carried out from Bank office. 53 26. Procurement Audit. In addition to prior review, Bank staff or Bank appointed consultant shall carryout post procurement audit once per annum. Agreed Procedures for National Competitive Bidding: I. Standard bidding documents approved by the Association shall be used. II. Invitations to bid shall be advertised in at least one (1) widely circulated national daily newspaper and bidding documents shall be made available to prospective bidders, at least twenty eight (28) days prior to the deadline for the submission of bids. III. Bids shall not be invited on the basis of percentage premium or discount over the estimated cost. IV. Bidding documents shall be made available, by mail or in person, to all who are willing to pay the required fee. V. Foreign bidders shall not be precluded from bidding. VI. Qualification criteria (in case pre-qualifications were not carried out) shall be stated on the bidding documents, and if a registration process is required, a foreign firm determined to be the lowest evaluated bidder shall be given reasonable opportunity of registering, without any hindrance. VII. Bidders may deliver bids, at their option, either in person or by courier service or by mail. VIII. All bidders shall provide bid security or a bid security declaration form as indicated in the bidding documents. A bidder's bid security or the declaration form shall apply only to a specific bid. IX. Bids shall be opened in public in one place preferably immediately, but no later than one hour, after the deadline for submission of bids. X. Evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format, and within the specified period, agreed with the Association. XI. Bids shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of the Association. XII. Split award or lottery in award of contracts shall not be carried out. When two (2) or more bidders quote the same price, an investigation shall be made to determine any evidence of collusion, following which: (A) if collusion is determined, the parties involved shall be disqualified and the award shall then be made to the next lowest evaluated and qualified bidder; and (B) if no evidence of collusion can be confirmed, then fresh bids shall be invited after receiving the concurrence of the Association; XIII. Contracts shall be awarded to the lowest evaluated bidders within the initial period of bid validity so that extensions are not necessary. Extension of bid validity may be sought only under exceptional circumstances. XIV. Extension of bid validity shall not be allowed without the prior concurrence of the Association (A) for the first request for extension if it is longer than four (4) weeks, and (B) for all subsequent requests for extensions irrespective of the period in case of prior review. XV. Negotiations shall not be allowed with the lowest evaluated or any other bidders. XVI. Re-bidding shall not be carried out without the Association's prior concurrence in case of prior review; and XVII. All contractors or suppliers shall provide performance security as indicated in the contract documents. A contractor's or a supplier's performance security shall apply to a specific contract under which it was furnished. 54 Annex 10: Detailed Results to date (as of December 31, 2012) Afghanistan: Safety Nets and Pensions Support Additional Financing PDO Project Outcome Progress to date Indicators a) To improve the 1. A central register * A comprehensive set of business process and IT administration of the provides computerized specifications developed; a new MIS system for the public pension record-keeping of Pension Department has been developed and is currently schemes participants and flow of in the rollout phase. funds. * New pensioners' records are computerized and the census to clean the records of old pensioners is underway. 2. Improved services to * Renovations of the premises of the Pension Department beneficiaries. are well advanced. Renovations work is expected to improve flow and access to business processes for beneficiaries. * The baseline survey of beneficiaries of the pension programs (both PSPP and MDPP), including final report conducted. 3. Improved revenue * A new chart of accounts of the pension system on the and financial MOF Treasury system designed and implemented. management of the Initial rounds of trainings for the payroll officers of pension programs. various ministries in requirements for deducting and remitting pension contributions and transferring to the special account of the pension program implemented. 4. Streamlined * Fiscal forecasting model for pension revenues and monitoring, budgeting expenditures developed -for long-term planning. and planning of the Capacity still being built to fully utilize model and for pension programs. short-term planning and budgeting. b) Pilot a modest 5. Safety net 0 A safety nets pilot program designed and adopted by the social safety net framework developed Inter Ministerial Steering Committee. Three rounds of program as a first and tested. the pilot incorporating benefit eligibility, verification, step to developing a award and delivery, implemented and design revised to sustainable approach incorporate lessons from the evaluations. to safety nets in the 0 In consultations with the MoF, the Ministry has country. prepared a scale up program building on the pilot project. 0 Fully fledged targeting and operational evaluations 6. An evaluation of the designed, conducted, and documented in final reports. pilot program Operational evaluation of the most recent cycle of the undertaken program is underway. 55