The World Bank Social Protection System Modernization Project (P145171) REPORT NO.: RES29916 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SOCIAL PROTECTION SYSTEM MODERNIZATION PROJECT APPROVED ON SEPTEMBER 19, 2014 TO THE REPUBLIC OF CROATIA November 15, 2017 SOCIAL PROTECTION & LABOR EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Arup Banerji Senior Global Practice Director: Michal J. Rutkowski Practice Manager/Manager: Cem Mete Task Team Leader: Ivan Drabek, Zoran Anusic The World Bank Social Protection System Modernization Project (P145171) ABBREVIATIONS AND ACRONYMS DLI Disbursement Link Indicator EUR Euro MDFYSP Ministry for Demography, Family, Youth and Social Policy MLPS Ministry of Labor and Pension System MF Ministry of Finance PDO Project Development Objective WB World Bank The World Bank Social Protection System Modernization Project (P145171) BASIC DATA Product Information Project ID Financing Instrument P145171 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 19-Sep-2014 31-Dec-2018 Organizations Borrower Responsible Agency Ministry of Demographics, Family, Youth and Social Ministry of Finance Policy,Ministry of Labor and Pension System Project Development Objective (PDO) Original PDO The project aims to improve the efficiency and effectiveness of Croatia’s social protection system. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-84260 19-Sep-2014 25-Sep-2014 24-Dec-2014 31-Dec-2018 95.55 7.43 86.37 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Social Protection System Modernization Project (P145171) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. The project includes a results-based component, with 14 DLIs worth EUR 50 million, and an investment component of EUR 20 million. Two DLIs, “establishment of the Central Disability Certification Institute with adequate staffing and methodology adopted” (DLI #5) and “adoption of the Operational Plan for Deinstitutionalization of Social Welfare Homes” (DLI # 11) worth EUR 4 million together, have been achieved and associated funds disbursed. Activities were launched in all five sub-components under the project’s investment component, but a slowdown in implementation occurred in 2015 in advance of parliamentary elections. A period of political changes that followed, with snap elections in 2016, halted the main project-supported reforms and almost all activities with exception of the activation sub-component. Therefore, progress towards achievement of the Project Development Objective (PDO) and implementation progress have been rated as “Unsatisfactory”. The project will be closed with an unsatisfactory rating because the PDO has not been achieved and the activities were not carried out. The exact rating will be determined with the implementation completion and results report (ICR), but could range from moderately unsatisfactory to highly unsatisfactory. B. After the Government entered the office in October 2016, the World Bank project team and management explored opportunities with the Government to restructure the project from policy perspective. Meetings with the Ministry of Demography, Family, Youth and Social Policy (MDFYSP), the Ministry of Labor and Pension System (MLPS) and the Ministry of Finance (MF) confirmed that there was limited interest to proceed with restructuring. Consequently, the Ministry of Finance informed the World Bank (WB), via an official request on July 28, 2017, of the Government’s decision to formally cancel all the project activities related to project’s four thematic areas (Consolidation of Social Assistance Cash Benefits Administration and Simplification of Procedures under One Stop Shop; Unifying and Harmonization of the Disability Certification; Reducing Error, Fraud and Corruption in Social Benefits; and Deinstitutionalization of Vulnerable Children and Adults). Fifth thematic area, Activation, has successfully implemented the activities envisioned under the project and will fully disburse. There are four ongoing contracts under this thematic area, with contract completion dates up to November 30, 2017. It is proposed therefore that the project closing date be moved to November 30, 2017 and the undisbursed DLI component of the loan be fully cancelled. II. DESCRIPTION OF PROPOSED CHANGES C. The proposed restructuring will move the project closing date from December 31, 2018 to November 30, 2017 and cancel the undisbursed loan funds in the amount of EUR 63,277,234.82. D. Change in Loan Closing Date – It is proposed to move ahead the loan closing date by 13 months to November 30, 2017. The loan will be provided regular four-month grace period until March 30, 2018 to complete the remaining payments and document the outstanding designated account balance to the WB. E. Cancellation of the Undisbursed Loan Funds – It is proposed to cancel the remaining undisbursed loan funds in the amount of EUR 63,277,234.82. The amount advanced to the designated account is EUR 1,000,000, with a balance of EUR 572,223.37 still available for further disbursements as of November 15, 2017. The MF confirmed that the available amount is sufficient to pay all remaining payables as per nine active contracts under the activation sub-component before the proposed new closing date. Those contracts comprise four contracts under The World Bank Social Protection System Modernization Project (P145171) the activation sub-component, four contracts with individual consultants in the Project Implementation Unit and a contract for an audit. If any of the ongoing contracts should be extended beyond the proposed new closing date, the Croatian authorities shall cover outstanding expenditures using other sources. F. The government has suggested to the Bank that it anticipates that once the 4-month grace period lapses and the loan account is officially closed by the Bank, it plans to send a request for a full prepayment of the loan and related charges. Such a request is expected around mid-May 2018. G. All financial management provisions and requirements are up to date and there are no overdue or qualified audits. Audit of the loan proceeds will be carried out in the first quarter of 2018 and paid with the available loan funds at the designated account within a four-month grace period from the new closing date. III. SUMMARY OF CHANGES Changed Not Changed Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Implementation Schedule ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Results Framework ✔ Change in Components and Cost ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ The World Bank Social Protection System Modernization Project (P145171) Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-84260 Effective 31-Dec-2018 30-Nov-2017 30-Mar-2018 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' S REQUEST IBRD- Disburs EUR 70,000,000.00 63,277,234.82 28-Jul-2017 6,722,765.18 FOR 84260-001 ing COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-84260-001 | Currency: EUR iLap Category Sequence No: 1 Current Expenditure Category: Payments for EEP for Part 1 50,000,000.00 4,000,000.00 4,000,000.00 100.00 100.00 The World Bank Social Protection System Modernization Project (P145171) iLap Category Sequence No: 2 Current Expenditure Category: GD,CW,Non-CS,CS,Audit,TR,IOC P.2&3 19,050,000.00 1,722,501.48 2,722,502.08 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: PPF REFINANCING 950,000.00 263.10 263.10 Total 70,000,000.00 5,722,764.58 6,722,765.18