Document of The World Bank FOR OFFICIAL USE ONLY Report No: RES22380 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE RURAL SERVICE DELIVERY AND LOCAL GOVERNANCE PROJECT TF18447 APPROVAL DATE: SEPTEMBER 30, 2013 TO THE INDEPENDENT STATE OF PAPUA NEW GUINEA February 26, 2016 SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE EAST ASIA AND PACIFIC 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. ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CDD Community Driven Development CPF Country Partnership Framework CS Consultants’ Services GO Goods IOC Incremental Operational Costs PDO Project Development Objective PMFM Practice Manager, Financial Management PMU Project Management Unit PNGSDP Papua New Guinea Sustainable Development Program SPF State- and Peace- Building Multi- Donor Trust Fund TF Trust Fund TR Training TRNG Training USD United States Dollar WFAFO World Bank Group Financial Operations WFALN Loan Accounting Regional Vice President: Axel van Trotsenburg Country Director: Franz Drees-Gross Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: Bassam Ramadan Task Team Leader: Kosuke Anan 2 INDEPENDENT STATE OF PAPUA NEW GUINEA Rural Service Delivery and Local Governance Project CONTENTS A. SUMMARY 8 B. PROJECT STATUS 8 C. PROPOSED CHANGES 9 3 DATA SHEET Papua New Guinea Rural Service Delivery and Local Governance Preparation and Pilot (P126157) EAST ASIA AND PACIFIC Social, Urban, Rural and Resilience Global Practice . Report No: RES22380 . Basic Information Project ID: P126157 Lending Instrument: Specific Investment Loan Regional Vice President: Axel van Trotsenburg Original EA Category: Partial Assessment (B) Country Director: Franz R. Drees-Gross Current EA Category: Partial Assessment (B) Senior Global Practice Ede Jorge Ijjasz-Vasquez Original Approval Date: 30-Sep-2013 Director: Practice Bassam Ramadan Current Closing Date: 31-Aug-2016 Manager/Manager: Team Leader(s): Kosuke Anan . Borrower: Department of Treasury Responsible Department of Provincial and Local Government Affairs, Agency: . Restructuring Type Form Type: Short Form Decision Authority: Country Director Approval Restructuring Level 2 Level: . Financing ( as of 10-Feb-2016 ) Key Dates Approval Effectiveness Original Revised Project Ln/Cr/TF Status Signing Date Date Date Closing Date Closing Date P126157 TF-15507 Effective 25-Sep-2013 14-Nov-2013 14-Nov-2013 31-Aug-2016 31-Aug-2016 P126157 TF-18447 Effective 05-Dec-2014 03-Mar-2015 03-Mar-2015 29-Feb-2016 29-Feb-2016 Disbursements (in Millions) % Cancelle Disburse Undisbur Project Ln/Cr/TF Status Currency Original Revised Disburse d d sed d P126157 TF-15507 Effective USD 3.20 3.20 0.00 2.59 0.61 81 P126157 TF-18447 Effective USD 1.80 1.80 0.00 0.71 1.09 39 . 4 Policy Waivers Does the project depart from the CAS/CPF in content or in other significant Yes [ ] No [ X ] respects? Does the project require any policy waiver(s)? Yes [ X ] No [ ] Explanation The Project has two outstanding audits (the 2013 audit due on June 30, 2014 and the 2014 audit due on June 30, 2015) and therefore requires the clearance of the Practice Manager, Financial Management (PMFM) and the World Bank Group Financial Operations (WFAFO) Manager to proceed with a level 2 restructuring. Has the waiver(s) been endorsed or approved by Bank Management? Yes [ X ] No [ ] Explanation The clearance to proceed with level 2 restructuring notwithstanding overdue audits was given by PMFM (GGO20) and WFAFO Manager (WFALN) on February 5, 2016 through an office memorandum. The 2013 audit has been conducted and is expected to be received as soon as the Auditor General signs off on the report, which could be as early as February 29, 2016. In order to expedite the 2014 audit, an external independent auditor will be sub-contracted by the Auditor General's Office. The 2014 audit is expected to be completed in approximately six weeks from the tendering of the independent auditor. Based on the discussion with the PMU, the Task Team expects that the 2014 audit will be delivered by May 31, 2016. . A. Summary of Proposed Changes This restructuring proposes to extend the Project closing date by six months from August 31, 2016 to February 28, 2017 and the Grant closing date of TF18447 (State- and Peace-Building Multi-Donor Trust Fund Grant: SPF Grant) by twelve months from February 29, 2016 to February 28, 2017. The extension is needed to complete the remaining activities of the Project, which has experienced some delays due to capacity constraints, extreme weather conditions, and unexpected administrative requirements imposed on beneficiary communities by commercial banks. Most of these constraints, except for extreme weather conditions, have now been resolved, and the project is expected to complete activities by the proposed new Project closing date. The extension of the Project closing date will not require additional financing; however, this restructuring proposes to combine the two disbursement categories of TF18447, in order to increase the Recipient's flexibility to use the remaining funds of the grant toward the completion of the Project. The modifications proposed under this restructuring will not change the Project Development Objective (PDO). No new activities are being proposed. There is no escalation of the safeguard rating, and no additional safeguards policies are triggered. The closing date of TF15507 is expected to remain as August 31, 2016, as the entity that funded the grant (Papua New Guinea Sustainable Development Program, Ltd.) is no longer in operation. . B. Project Status The Project was approved on September 30, 2013, signed on November 14, 2013, and also became effective on November 14, 2013. The Project Development Objective is to “develop a community-driven development model to improve access to, and the quality of, basic services in rural communities, which is scaled-up by government.� The Project supports rural communities to identify priority needs and prepare subproject proposals through trainings, and provides grants for the communities to implement their subprojects. Under the project, most of the target communities have (a) participated in project planning and implementation trainings; (b) identified and prioritized community development needs through participatory processes; (c) developed subproject proposals; (d) provided in-kind contribution for the subprojects (such as provision of community land, construction of auxiliary facilities, installation of 5 community bulletin boards, etc.); and (e) opened (or are close to opening) community bank accounts. They have just received or are waiting to receive the community development grants from the Project to start implementing subprojects in communities. Results data collected to date indicate a high level of community participation and application of the community-driven development model. The current ratings for the progress towards achievement of the Project Development Objectives and implementation progress are both moderately satisfactory (MS). The Project has two outstanding audits for 2013 and 2014. The project has experienced some delays, due to (a) challenges faced in the initial formation of the PMU; (b) difficulties in providing adequate assistance to communities for preparing detailed technical designs of subprojects; (c) extreme weather conditions (associated with the El Niño) affecting outreach and transportation to remote communities; and (d) additional requirements (such as an endorsement letter from the Department of Finance) imposed by commercial banks to open community bank accounts. However, as most of these challenges have been resolved, except for the continued abnormal weather conditions, and the implementation of subprojects is rolling out, the Project is expected to achieve its development objectives, if the Project and Grant closing dates can be extended until February 28, 2017. In order to ensure the completion of the Project by the new proposed closing date, the Borrower has agreed to (a) immediately hire additional Provincial Support Unit staff (civil engineers and carpenters) to increase subproject implementation support to communities; (b) provide proactive and extensive support to communities on procurement as planned and summarized in the Annex B of the Aide Memoire from the Implementation Support Mission conducted in November 2015; and (c) submit withdrawal applications on a monthly basis to speed up disbursements. . C. Proposed Changes . Financing Change in Loan Closing Date(s): Explanation This restructuring proposes to extend the Project closing date by six months from August 31, 2016 to February 28, 2017 and the Grant closing date of TF18447 (SPF Grant) by twelve months from February 29, 2016 to February 28, 2017. The extension is needed to complete the remaining activities of the Project, which has experienced some delays due to capacity constraints, extreme weather conditions, and unexpected administrative requirements imposed on beneficiary communities by commercial banks. Most of these constraints, except for extreme weather conditions, have now been resolved, and the project is expected to require until February 28, 2017 to complete all its activities. If TF18447 becomes unavailable after February 29, 2016, the Project will not have sufficient funding to complete its activities and achieve the Project Development Objectives. Being a community-driven development (CDD) project, the Project has mobilized rural communities, and people have made extensive contributions to its activities. Given that communities have already provided a significant level of effort, time, and contribution toward the Project, failure to complete Project activities would have adverse implications, not only for the participating rural communities, but also for the future of participatory and decentralized governance models in the country in general, as confidence in community driven development would be eroded. Original Closing Current Closing Proposed Closing Previous Closing Ln/Cr/TF Status Date Date Date Date(s) TF-15507 Effective 31-Aug-2016 31-Aug-2016 31-Aug-2016 6 TF-18447 Effective 29-Feb-2016 29-Feb-2016 28-Feb-2017 29-Feb-2016 Reallocations Explanation This restructuring proposes to combine the two disbursement categories of TF-18447 in order to increase the Recipient's flexibility to use TF-18447 for completing Project activities. The closing date of TF-15507 is expected to remain as August 31, 2016, as the entity that funded TF-15507 (Papua New Guinea Sustainable Development Program, Ltd.) is no longer in operation. Therefore, it is critical that the Recipient be given more flexibility to use TF-18447 towards project completion, especially after August 31, 2016. Current Category of Disbursement % (Type Ln/Cr/TF Currency Allocation Expenditure Total) Current Proposed Current Proposed TF-15507 USD GO, CS, TR, & IOC 1,800,000.00 1,800,000.00 100.00 100.00 SUB-GRANTS 1,400,000.00 1,400,000.00 100.00 100.00 Designated Account 0.00 0.00 0.00 0.00 Total: 3,200,000.00 3,200,000.00 TF 18447 GO CS TF-18447 USD 1,500,000.00 0.00 100.00 0.00 TRNG IOC TF 18447 SUB 300,000.00 0.00 100.00 0.00 GRANTS Designated Account 0.00 0.00 0.00 0.00 TF 18447 GO, CS, TR, 0.00 1,800,000.00 0.00 100.00 IOC, Subgrants Total: 1,800,000.00 1,800,000.00 7 Independent State of Papua New Guinea: Rural Service Delivery and Local Governance Project (P126157) Restructuring Paper A. SUMMARY 1. This restructuring proposes to extend the Project closing date of the Rural Service Delivery and Local Governance Project (P126157) by six months from August 31, 2016 to February 28, 2017 and the Grant closing date of TF18447 (State- and Peace-Building Multi-Donor Trust Fund Grant: SPF Grant) by twelve months from February 29, 2016 to February 28, 2017. The extension is needed to complete the remaining activities of the Project, which has experienced some delays due to capacity constraints, extreme weather conditions, and unexpected administrative requirements (such as an endorsement letter by the Department of Finance) imposed on beneficiary communities by commercial banks. Most of these constraints, except for extreme weather conditions, have now been resolved, and the project is expected to complete activities by the proposed new Project closing date. The extension of the Project closing date will not require additional financing; however, this restructuring proposes to combine the two disbursement categories of TF18447, in order to increase the Recipient's flexibility to use the remaining funds of the grant toward the completion of the Project. The modifications proposed under this restructuring will not change the Project Development Objective (PDO). No new activities are being proposed. There is no escalation of the safeguard rating, and no additional safeguards policies are triggered. The closing date of TF15507 is expected to remain at August 31, 2016, as the entity that funded the grant (Papua New Guinea Sustainable Development Program, Ltd.) is no longer in operation. B. PROJECT STATUS 2. The Project was approved on September 30, 2013, signed on November 14, 2013, and also became effective on November 14, 2013. The Project Development Objective is to “develop a community-driven development model to improve access to, and the quality of, basic services in rural communities, which is scaled-up by government.� The Project supports rural communities to identify priority needs and prepare subproject proposals through trainings, and provides grants for the communities to implement their subprojects. Under the project, most of the target communities have (a) participated in project planning and implementation trainings; (b) identified and prioritized community development needs through participatory processes; (c) developed subproject proposals; (d) provided in-kind contribution for the subprojects (such as provision of community land, construction of auxiliary facilities, installation of community bulletin boards, etc.); and (e) opened (or are close to opening) community bank accounts. They have just received or are waiting to receive the community development grants from the Project to start implementing subprojects in communities. Results data collected to date indicate a high level of community participation and application of the community-driven development model. The current ratings for the progress towards achievement of the Project Development Objectives and implementation progress are both moderately satisfactory (MS). The Project has two outstanding audits for 2013 and 2014. 3. The project has experienced some delays, due to (a) challenges faced in the initial formation of the PMU; (b) difficulties in providing adequate assistance to communities for preparing detailed technical designs of subprojects; (c) extreme weather conditions (associated with the El Niño) affecting outreach and transportation to remote communities; and (d) additional requirements (such as an endorsement letter from the Department of Finance) imposed by commercial banks to open community bank accounts. However, as most of these challenges have been resolved, except for the continued abnormal weather conditions, and the implementation of subprojects is rolling out, the Project is expected to achieve its development objectives, if the Project and Grant closing dates can be extended until February 28, 2017. 8 4. In order to ensure the completion of the Project by the new proposed closing date, the Borrower has agreed to (a) immediately hire additional Provincial Support Unit staff (civil engineers and carpenters) to increase subproject implementation support to communities; (b) provide proactive and extensive support to communities on procurement as planned and summarized in the Annex B of the Aide Memoire from the Implementation Support Mission conducted in November 2015; and (c) submit withdrawal applications on a monthly basis to speed up disbursements. C. PROPOSED CHANGES 5. This restructuring proposes to extend the Project closing date by six months from August 31, 2016 to February 28, 2017 and the Grant closing date of TF18447 (SPF Grant) by twelve months from February 29, 2016 to February 28, 2017. The extension is needed to complete the remaining activities of the Project, which has experienced some delays due to capacity constraints, extreme weather conditions, and unexpected administrative requirements imposed on beneficiary communities by commercial banks. Most of these constraints, except for extreme weather conditions, have now been resolved, and the project is expected to require until February 28, 2017 to complete all its activities. If TF18447 becomes unavailable after February 29, 2016, the Project will not have sufficient funding to complete its activities and achieve the Project Development Objectives. 6. Being a community-driven development (CDD) project, the Project has mobilized rural communities, and people have made extensive contributions to its activities. Given that communities have already provided a significant level of effort, time, and contribution toward the Project, failure to complete Project activities would have adverse implications, not only for the participating rural communities, but also for the future of participatory and decentralized governance models in the country in general, as confidence in community driven development would be eroded. 7. This restructuring also proposes to combine the two disbursement categories of TF-18447, in order to increase the Recipient's flexibility to use TF-18447 for completing Project activities. The closing date of TF-15507 is expected to remain at August 31, 2016, as the entity that funded TF- 15507 (Papua New Guinea Sustainable Development Program, Ltd.) is no longer in operation. Therefore, it is critical that the Recipient be given more flexibility to use TF-18447 towards project completion, especially after August 31, 2016. 9