The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) REPORT NO.: RES32876 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF STRENGTHENING THE SCIENCE, TECHNOLOGY AND INNOVATION SYSTEM IN PERU APPROVED ON JANUARY 11, 2017 TO REPUBLIC OF PERU FINANCE, COMPETITIVENESS AND INNOVATION LATIN AMERICA AND CARIBBEAN Regional Vice President: Jorge Familiar Calderon Country Director: Alberto Rodriguez Senior Global Practice Director: Ceyla Pazarbasioglu-Dutz Practice Manager/Manager: Zafer Mustafaoglu Task Team Leader: Alberto Criscuolo, Livia M. Benavides The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) ABBREVIATIONS AND ACRONYMS CONCYTEC Consejo Nacional de Ciencia, Tecnología, e Innovación Tecnológica (National Council for Science, Technology, and Innovation) CRI Competitiveness Reinforcement Initiative FONDECYT Fondo Nacional de Desarrollo Científico Tecnológico y de Innovación Tecnológica (National Fund for the Development of Science, Technology, and Technological Innovation) ICT Information and Communications Technology IE Impact Evaluation INEI Instituto Nacional de Estadística e Informática (National Institute of Statistics) IP Implementation Progress IT Information Technology MEF Ministry of Economy and Finance MOU Memorandum of Understanding PDC Project Directive Committee PDO Project Development Objective PER Public Expenditure Review PI Productive Innovation PIT Project Implementation Team SINACYT Sistema Nacional de Ciencia, Tecnología y Innovación (National System of Science, Technology and Technological Innovation) STI Science, Technology, and Innovation WBG World Bank Group The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) BASIC DATA Product Information Project ID Financing Instrument P156250 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 11-Jan-2017 31-Dec-2021 Organizations Borrower Responsible Agency Republic of Peru CONCYTEC Project Development Objective (PDO) Original PDO The project s development objective is to strengthen the science, technology and innovation system to improve research skills andfirm-level innovation. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-86820 11-Jan-2017 08-Feb-2017 06-Jul-2017 31-Dec-2021 45.00 3.20 41.80 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The Project Development Objective (PDO) is still relevant and viable. Progress towards the achievement of the PDO is rated as Satisfactory and overall Implementation Progress (IP) is rated as Moderately Satisfactory. The loan was approved on January 11, 2017, became effective on July 6, 2017, and initiated disbursement in January 2018. Implementation during 2017 was slow, mainly because the Ministry of Finance did not allocate budget for the Project. In addition, there was a change in the leadership of CONCYTEC-FONDECYT in September 2017, requiring some additional time for the new staff to learn about the Project. As a result, hiring of project staff was delayed to early January 2018. 2. The Project has since achieved the following milestones: (a) secured a budget allocation under the Budget Law of 2018, (b) has disbursed loan funds to the designated account, (c) completed the recruitment of the Project Implementation Team (PIT), including the Project Coordinator, and technical teams for the implementation of Components 1, 2, and 3. A summary of progress under each component follows:  Component 1: CONCYTEC staff have been trained on the STI PER methodology and consultants are being hired for the implementation of the survey; the complete technical documentation is ready for the international procurement of the national ICT platform for STI.  Component 2: the technical phase of the Sector Prioritization has been completed and the Public Private Policy Dialogue has been launched; the technical documentation for the international procurement of the Capacity Building Program and TA on the CRI for PI pilots has been prepared; the TOR for the Impact Evaluation has been submitted to the Bank for review.  Component 3: the Bank has provided the no objection for the Specific Operations Manual and remaining documents for three competitive calls for proposals for (i) scientific equipment; (ii) PhD Programs; and, (iii) strategic and general research projects. All three have been published and the first set of proposals are currently under evaluation. Awards are expected by the end of September 2018.  Component 4: the Project Implementation Team (PIT) is fully in place and has been trained on WBG Financial Management and Procurement procedures. 3. The proposed restructuring addresses two operational aspects of the Project and do not affect either the PDO, indicators or overall design, as follows: a. The call for proposals linked to the subcomponent 3.1.(i): Provision of Grants and Co-financing for Researchers was initially designed such that a third-party agency would be hired to carry out the contracting of researchers coming from abroad. This design replicated the “Magnet” model being used by CONCYTEC at the time this Project was designed and negotiated. This model was found to facilitate the hiring of researchers coming from abroad, especially in the case where they were designated to work in a public institution. However, the implementation of this model showed that the researchers being hired did not fully insert themselves in the academic institutions as their contract was with a third-party institution. The new CONCYTEC leadership has requested that the third-party model be eliminated and replaced by a subproject model where researchers would be hired by the beneficiary institutions as consultants. An assessment carried out by CONCYTEC has shown that this is legally feasible both for private and public institutions. This model is also feasible under WBG procurement rules, subject to the use of the WBG policy for hiring of consultants. b. The second part of the amendment would address an inconsistency between the PAD and the Loan Agreement. The first document indicates that, under subcomponent 2.3 there are two types of matching grants, Type 1 Matching Grants and Type 2 Matching Grants. Under the first type, the purchasing of goods and The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) services would be carried out by the beneficiary institution under a subproject model. Under the second type of matching grants, FONDECYT would be responsible for hiring consultant and non-consultant services. The Loan Agreement does not differentiate the two types of matching grants, and indicates that FONDECYT is responsible for the procurement of goods, services, and consultancy contracts on behalf of project beneficiaries. II. DESCRIPTION OF PROPOSED CHANGES 1. The proposed changes seek to address two operational items under the loan agreement which are: (a) the elimination of the use of a third-party agency for the implementation of subcomponent 3.1.(i): Provision of Grants and Co-financing for Researchers, and (b) clarification in the Loan Agreement of FONDECYT’s role in the procurement of goods, services, and consultancy contracts vis a vis project beneficiaries for the two types of matching grants under subcomponent 2.3: Productivity and Innovation Fund for Technology Transfer and Upgrading. 2. With respect to the first part, initially CONCYTEC-FONDECYT requested that a third-party be hired to issue contracts to all researchers coming from abroad (both expatriates and returning Peruvian nationals). This was the only practicable institutional arrangement during preparation, as CONCYTEC did not consider it legally viable to directly hire researchers. However, a recent institutional and legal assessment has indicated that it is viable for project beneficiaries to directly hire researchers as consultants as part of the subprojects. The Bank has reviewed both assessments and found them satisfactory. In addition, this model would ensure that the researcher would be included as a member of the institution, thus enabling a work relationship that could potentially go beyond the life of the Project. The elimination of the third-party agency would also bring some savings to the Project by eliminating the administrative fees that would be charged by such an institution. On the other hand, CONCYTEC-FONDECYT have committed to hiring the necessary additional staff to ensure that contracts are managed on a timely manner. The restructuring would eliminate the use of the third-party and, consequently, the disbursement condition for this subcomponent 3.1.(i). Hiring of researches coming from abroad will be done according to the processes already established for matching grants under component 3. 3. With respect to the second item, a review of the Loan Agreement has shown an inconsistency between the Project Appraisal Document (PAD) and the Loan Agreement regarding matching grant funds and procurement, which this restructuring would aim to resolve. a. The PAD details two types of matching grant funds under subcomponent 2.3: Productivity and Innovation Fund for Technology Transfer and Upgrading: i. Type 1 Matching Grants: These should be administered as subprojects in which the beneficiaries receive a matching contribution and procure themselves the goods, non-consulting services and consultants’ services they need. ii. Type 2 Matching Grants: These should be administered through FONDECYT as the entity responsible for the procurement of services required by the beneficiaries. b. The Loan Agreement does not currently distinguish between the two types of matching grants and does not allow for the implementation of matching grants as subprojects, but requires all matching grants under the Project to have all procurement to be carried out by FONDECYT. c. Given the above, the proposed restructuring would separate the two types of matching grants under Part 2.3, and include separated provisions for each type of matching grant in Section I.B. of Schedule 2 in the Loan Agreement. 4. Financial Management and Disbursement arrangements. Further to the proposed changes, the FM and Disbursement arrangements will be modified as follows: a. With respect to the first item (subcomponent 3.1(i)), funds will be managed as Matching Grants whereby FONDECYT will transfer funds to beneficiaries in a similar manner to Matching Grants under the other sub- The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) components under component 3. In addition, a new disbursement category would be established to fund consulting and non-consulting services linked to the evaluation and monitoring of the Matching Grants under component 3. b. With respect to the second item (subcomponent 2.3); FONDECYT should process the transfer of funds to the project beneficiaries under subcomponent 2.3 (Type 1) and report as expenditures to the Bank once such transfers have been processed. Funds for Matching Grants under subcomponent 2.3 (Type 2) should be managed through FONDECYT. c. FONDECYT is responsible to monitor the transfer of funds and respective justification of expenditures made to the beneficiaries. Disbursement arrangements and forms to report expenditures under these subcomponents will be specified in the Disbursement Letter. III. SUMMARY OF CHANGES Changed Not Changed Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) APA Reliance ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-86820-001 | Currency: USD Current Expenditure Category: Matching Grants under Parts 2.3 (Productivity and iLap Category Sequence No: 1 Innovation Grants Type 1) and 3 25,391,600.00 0.00 31,000,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: CS,NCS required for Matching Grants under Part 3 13,765,800.00 0.00 3,157,400.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: GO,NCS,CS,OP&TR-Pt 1, 2.1, 2.2, 2.4 & 4 5,842,600.00 62,372.77 5,842,600.00 100.00 100.00 Current Expenditure Category: GO, NCS, CS, OP &TR for Mathcning Grants under iLap Category Sequence No: 4 Part 2.3 (Productivity and Innovation Matching Grants Type 2) 0.00 0.00 5,000,000.00 100.00 Total 45,000,000.00 62,372.77 45,000,000.00 The World Bank Strengthening the Science, Technology and Innovation System in Peru (P156250) OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2017 0.00 0.00 2018 200,000.00 610,000.00 2019 10,000,000.00 11,100,000.00 2020 11,700,000.00 15,860,000.01 2021 11,500,000.00 13,960,000.04 2022 11,500,000.00 3,469,999.95 .