The World Bank Third Public Sector Modernization Project (P149913) REPORT NO.: RES43463 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THIRD PUBLIC SECTOR MODERNIZATION PROJECT APPROVED ON SEPTEMBER 30, 2015 TO REPUBLIC OF ARMENIA GOVERNANCE GLOBAL PRACTICE EUROPE AND CENTRAL ASIA REGION Regional Vice President: Anna M. Bjerde Country Director: Sebastian-A Molineus Regional Director: Lalita M. Moorty Practice Manager: Daniel J. Boyce Task Team Leader(s): Arman Vatyan, K. Migara O. De Silva The World Bank Third Public Sector Modernization Project (P149913) ABBREVIATIONS AND ACRONYMS APSAS Armenia Public Sector Accounting Standards BPR Business Process Reengineering DPM Deputy Prime Minister GFMIS Government Financial Management Information System MoF Ministry of Finance PDO Project Development Objective PFM Public Financial Management PMG Project Management Group TPSMP Third Public Sector Modernization Project WB World Bank The World Bank Third Public Sector Modernization Project (P149913) N o t e DATA BASIC t o Information Product T a ID Project Financing Instrument s P149913 Investment Project Financing k Original EA Category Current EA Category T Not eRequired (C) Not Required (C) a Approval Date Current Closing Date m 30-Sep-2015 s 30-Nov-2022 : T Organizations h Borrower e Responsible Agency f Republic of Armenia Office of the Government o l l Project Development Objective (PDO) o w PDO Original The iproject development objective (PDO) is to improve quality of the public financial reporting and to improve access to selected n enhanced e-government services. g OPS_TABLE_PDO_CURRENTPDO Summary s Status of Financing (US$, Millions) e Net c Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed t i IBRD-85390 30-Sep-2015 18-Nov-2015 06-May-2016 30-Nov-2022 21.00 8.90 12.10 o n Waiver(s) Policy s Doesa this restructuring trigger the need for any policy waiver(s)? No r e s y s t e The World Bank Public Sector Modernization Project III (P149913) N I. PROJECT o STATUS AND RATIONALE FOR RESTRUCTURING t e A. Status t 1. The Third Public Sector Modernization Project (TPSMP) was approved by the World Bank (WB) Board of Executive o Directors on September 30, 2015 and financed by a loan of US$21 million (IBRD Loan No. 8539-AM) and counterpart T funding of US$15.7 million. The Project’s Loan agreement between the Government of the Republic of Armenia and a the WB was signed on November 18, 2015 and the Project became effective on May 6, 2016 with an original closing s date of December 31, 2020. The current closing date is November 30, 2022. k T 2. The current PDO is to improve quality of the public financial reporting and to improve access to selected enhanced e e-government services. The Project consists of four components: Component 1 – Public Financial Management a Information Systems (US$19.0 million); Component 2 – e-Governance Solutions for Improved Service Delivery m (US$14.0 million); Component 3 – Capacity Building and Small Capacity Building Interventions (US$1.85 million); and s Component 4 – Project Management (US$1.85 million). Allocations for Project components include counterpart : funding. E n 3. The TPSMP has had two restructurings. First one was approved on May 20, 2019 to reflect the change in the d implementing agency responsible for fiduciary functions under the Project as part of the Ministry of Finance (MoF) o re-organization. A second one was approved on July 18, 2019 to (i) reflect the change in the implementing agency f responsible for fiduciary functions under the Project to the Project Management Group (PMG) under the Prime s Minister office, (ii) extend the closing date by 23 months, (iii) establish one single disbursement category under the y Project, and (iv) revise some of the indicators. s t In its fourth year of implementation, the Project is well positioned to meet the second part of its PDO: to improve 4. e access to selected enhanced e-government services. The Project has over-achieved the target for the PDO-level m indicator of reduced time for processing a passport extension request (current value is 24 hours versus a target of 48 g hours from a baseline of 500 hours). Likewise, it has achieved about 50 percent of the target for the PDO-level indicator e related to increased access to e-consular services for issuing citizenship, civil status certificates and statements on any n existing criminal records. These achievements are significant considering that they benefit both citizens in the country e and Armenia’s large diaspora. The Project also launched a whistleblowing platform in May 2019. Although this r platform was not included in the original design, the Project supported the activity as it provides the Government a a tool for fighting corruption which is of high relevance in the context of Armenia and is well-aligned with the PDO’s t second outcome area. Nevertheless, several e-government services that would improve the delivery of public services e as well as provide additional benefits to the citizens remain to be deployed. d c Unlike the advances seen in some activities, the likelihood of progress towards the first part of the PDO related to 5. o improving the quality of government’s public financial reporting is very low due to delays in the implementation of n t e n t , The World Bank Public Sector Modernization Project III (P149913) a GFMIS (Component 1), which in turn jeopardizes meeting the PDO-level indicator by the current closing date of November 30, 2022. The implementation of GFMIS was expected to improve the quality of financial reporting. However, MoF lacked clarity on the way forward - as to whether the Project should proceed with the implementation as originally envisaged and what steps it should take on the undisbursed funding available under a parallel Russian grant (US$8.2M) for the implementation of the GFMIS. The Russian grant is directly implemented by the MoF, with no involvement of the PMG. After several years of protracted discussion, the MoF finally decided in November 2019 to implement the GFMIS (also reflected in the PFM Strategy, approved by the Cabinet) and initiated a business process reengineering (BPR), which was largely delayed. The agreement with the Government counterparts was to assess the funding required under the Project once the BPR was completed. However, BPR implementation continues to face delays, in part due to the COVID-19 situation, which has made it unclear whether the Project would be able to fund GFMIS implementation before the Project closing date. 6. The GFMIS scope and budget were reassessed by the Bank during May and June 2019 missions. Based on the assessments, the original allocation to the GFMIS to be financed by the Bank was indicatively decreased from US$7 million to US$2 million. This was also requested by the Chairman of the Project Management Board - Deputy Prime Minister (DPM) in a letter dated September 11, 2019 to retain US$ 2 million in Component 1 and to reallocate US$5 million of the Bank financing to other priority activities supported under Component 2 of the Project. All other funds under the Project are already assigned to different activities. The MoF also requested to start disbursement from the Russian grant, and use the Bank financing only after the Russian grant is fully disbursed. Considering current progress with BPR implementation and MoF decision to use Russian grant first, it is less possible to use Bank financing to fund the GFMIS activities by the Project closing date. Accordingly, partial cancellation of allocations for GFMIS under Component 1 has been considered. 7. The current Project rating for PDO achievement is Moderately Satisfactory (MS) while the implementation progress (IP) rating is Satisfactory (S) per last ISR archived on June 27, 2020. Achievement of PDO is rated Moderately Satisfactory due to lack of progress in achieving the first part of the PDO. Satisfactory IP rating is due to the significant progress in the deployment of e-services. This includes e-consular services, as well as a significant breakthrough in a pre-trial case management system and strengthening the policy and institutional setup of e-government management – these falling under Component 2 (e-Governance Solutions for Improved Service Delivery). This demonstration of a satisfactory level of progress is expected to translate into further improvements in disbursement which currently amounts to US$8.9 million or 42% of the loan, which increased substantially thanks to a 30% disbursement rate in FY20 following the July 2019 restructuring. With the current commitments representing around 7% of the loan, FY2021 disbursements are expected to be at around 25% of the loan. 8. The financial management arrangements under the Project remain satisfactory and currently there are no overdue audits under the Project. Procurement compliance is also satisfactory. B. Rationale for Restructuring The World Bank Public Sector Modernization Project III (P149913) 9. Borrower’s request. In a letter dated July 17, 2020, the MoF requested a partial cancellation of US$0.7 million from the original Loan amount of US$21 million to recommit the resources to a proposed additional financing that will support the Armenian healthcare system. When the Coronavirus Disease 2019 (COVID-19) hit Armenia, the Government repurposed US$3 million from the ongoing Disease Prevention and Control Project (DPCP, P128442) towards purchasing emergency medical equipment, creating a financing gap to complete the construction of two Medical Centers in Martuni and Vayots Dzor marzes. In addition, in the letter dated December 11, 2019, the MoF informed the Bank of its preference to use the TPSMP funds for GFMIS, only if the Russian grant is not sufficient for GFMIS implementation. From the Bank’s technical perspective, this preferred approach by the MoF would not allow for the achievement of the first part of the PDO of improving the quality of financial reporting within the Project’s current closing date of November 2022. Since it is seen as unlikely that the US$8.2 million Russian grant could be disbursed prior to the Project closing date, the result of this decision is that GFMIS-related activities are proposed to be removed from this project. 10. Changes to PDO. In response to the Government’s request, it was agreed between the Deputy Prime Minister’s (DPM) Office, head of the Project Steering Committee, and the WB to drop the activity related to GFMIS (Sub- component/Part 1.1: Design, Development and Implementation of a GFMIS), partially cancel US$0.7 million and drop the related indicators on improvement of quality of public financial reporting. More importantly, since GFMIS is the most critical output in the results chain that will allow achievement of the first part of the PDO, the PDO will need to be revised to drop the desired outcome of improving the quality of financial reporting. II. DESCRIPTION OF PROPOSED CHANGES 11. The restructuring proposes to primarily drop the activity related to GFMIS which would require a revision to the PDO and the results framework, changes in components and costs, partial loan cancellation, revision to disbursement estimates, revision in the implementation schedule, and procurement plan. A. PDO 12. The PDO has been revised to remove the part of the PDO “to improve quality of the public financial reporting”. The revised PDO to be reflected in the Loan Agreement should now read: “The objective of the Project is to improve access to selected enhanced e-government services”. B. Results Framework 13. As a result of dropping GFMIS and the revision of the PDO, the original results framework will be modified to remove the PDO-level indicator “Improved quality of annual financial reporting”. Likewise, the related intermediate results indicator “Establish preconditions required for consolidation of the financial statements” will be deleted. Given the significant delays in GFMIS implementation and that it is now to be dropped from Project, preparation of consolidated financial statements that are compliant with the Armenia Public Sector Accounting Standards (APSAS), The World Bank Public Sector Modernization Project III (P149913) which is an end-target value for the intermediate results indicator could not be met within the Project’s current closing date. With minimal activities under Component 1 of the Project, there will be no intermediate results indicator for this component under the revised results framework. The intermediate results indicator under Component 3 is clarified and reworded as follows: “Number of trainers for the new needs-based training system in the civil service established under the Project.” C. Changes in component costs, Partial Cancellation and Reallocation across Components 14. The sub-component/Part 1.1 on the design, development and implementation of GFMIS will be dropped. 15. With GFMIS no longer supported under the Project, sub-component/Part 1.2 (iii) related to “the carrying out of capacity building activities for the roll out of the APSAS” will also be dropped since APSAS roll-out is dependent on GFMIS implementation. 16. The Bank financing for Component 1 – Public Financial Management Information Systems will be decreased by US$6.7 million from original allocation from US$7 million to US$0.3 million, where US$6 million will be reallocated to Component 2 and US$0.7 million will be canceled. Following the DPM request dated September 11, 2019, US$5 million was already agreed in principle to be reallocated from Component 1 to the activities under Component 2. With the additional changes, the overall allocation for Component 1 will be decreased by US$18.6 million, where US$ 8.2 million was for Russian parallel financing, US$ 0.7 million is the amount to be canceled, US$ 2.2 million - the counterpart financing covering taxes of the Russian parallel financing and the amount to be canceled, and US$ 7.5 million (including US$ 1.5 million government co-financing) is reallocated to Component 2. The GFMIS with support from the Russian grant will be implemented by the MOF without support from the Project. The total costs allocation for Component 2 would be increased from US$14 million to US$21.5 million. The additional funding under Component 2 among others will finance (i) on-line platform for around 30-40 digitalized public services including joint electronic platform for notifications and permits through establishment of electronic platform providing all the state licenses and permits, (ii) e-platform for documents verification to establish a unified system to issue and validate all the state documents (related to education, civil status, notary, property rights, etc), (iii) statistical dashboard for decision makers that will collect statistics from state databases and provide real time information to decision makers, and (iv) computers and servers to effectively manage the information system and support roll out of the new e-government systems. These all fall under the existing legal description for Component 2. These additional activities have become more relevant in the context of ensuring business continuity and uninterrupted public services access to citizens and private sector in situations of quarantine/lockdown as is the case with the COVID-19 pandemic. 17. No other changes are made on the other components. D. Disbursement Estimates 18. The Project’s disbursement estimates will also be revised given the partial cancellation and dropping of GFMIS. E. Other Changes The World Bank Public Sector Modernization Project III (P149913) 19. The Implementation Schedule and Procurement Plan will be adjusted to reflect the activities dropped from the Project as well as the implementation of additional activities under Component 2 with the increased allocation of US$ 7.5 million. F. Economic and Financial Analysis 20. The updated cost-benefit analysis of the revised TPSMP indicates that from an economic standpoint the project remains feasible and attractive, and from an investment perspective, it is still profitable and beneficial. The efficiency gains which would have resulted from GFMIS will be compensated by the gains from new e-Gov activities which are included in the Project. The implementation of the e-Government services is expected to generate improvements in efficiency and effectiveness for the private sector and citizens. Tangible benefits that are susceptible to measurement include improved access to selected services and reduced transaction costs in accessing these services. Intangible benefits for the private sector and citizens that are more difficult to measure include improvements in transparency, customer satisfaction, and greater trust in government. Moreover, continued support to e-Government services positions the Project well in ensuring business continuity and uninterrupted services to citizens and private sector under lockdown/quarantine as is necessary under situations of emergency such as COVID-19. 21. The implementation of e-Government system is expected to generate a wide range of e-services, the focus of this analysis is on e-Consular services for which data is available. The lack of data for the remaining e-services at this stage precludes the estimate of their economic benefits. The Project benefits accruing to the government and for the citizens from the implementation of e-Consular services results in Net Present Value (NPV) of US$ 3.6 million at 13.7 percent discount rate and the internal rate of return (IRR) of 66 percent. The estimated benefits comprise savings from administrative efficiency for the government and reduced transaction costs for citizens in accessing consular services. The assumptions used during Project appraisal is repeated for this analysis and updated for latest available data to include Project investment costs and benefits associated with only e-consular services. The actual benefits will be substantially higher as the efficiency gains from several additional e-Government services such as integrated security systems for all e-governance platforms, creation of online platform for about 30-40 public services and creation of mobile software solutions for public services, creation of electronic platform for state licenses and permits, establishment of unified system of issuance and validation of state documents, and statistical dashboard for decision- makers are not quantified due to immediate unavailability of data. The full benefits from these additional e- Government services can only be assessed once preparation of business process re-engineering and system design are at an advanced stage. N o III. SUMMARY t OF CHANGES e t Changed Not Changed o Project's Development Objectives ✔ T Results Framework ✔ a Components s and Cost ✔ k T e a m The World Bank Public Sector Modernization Project III (P149913) Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ PBCs ✔ Loan Closing Date(s) ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_PDO_TABLE PROJECT DEVELOPMENT OBJECTIVE Current PDO The project development objective (PDO) is to improve quality of the public financial reporting and to improve access to selected enhanced e-government services. Proposed New PDO The project development objective (PDO) is to improve access to selected enhanced e-government services. The World Bank Public Sector Modernization Project III (P149913) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Public Financial Management Public Financial Management 19.00 Revised 0.38 Information Systems Information Systems e-Governance Solutions for e-Governance Solutions for 14.00 Revised 21.50 Improved Service Delivery Improved Service Delivery Capacity Building and Small Capacity Building and Small 1.85 No Change 1.85 Capacity Building Interventions Capacity Building Interventions Project Management 1.85 No Change Project Management 1.85 TOTAL 36.70 25.58 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 USD 21,000,000.00 700,000.00 21-Jul-2020 20,300,000.00 FOR 85390-001 ing COUNTRY REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-85390-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: GD,Non-CS,CS,TR,IOC for P.1.1(a), 1.2, 2, 3, and 4 20,947,500.00 8,051,649.75 20,247,500.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GD,Non-CS,CS,TR for P.1.1(a) - in memoriam The World Bank Public Sector Modernization Project III (P149913) 0.00 0.00 0.00 100.00 100.00 Total 20,947,500.00 8,051,649.75 20,247,500.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2016 0.00 0.00 2017 300,000.00 300,000.00 2018 1,137,550.00 1,137,550.00 2019 2,000,000.00 2,000,000.00 2020 7,000,000.00 7,000,000.00 2021 7,000,000.00 6,000,000.00 2022 3,862,450.00 3,862,450.00 . The World Bank Public Sector Modernization Project III (P149913) . Results framework COUNTRY: Armenia Third Public Sector Modernization Project Project Development Objectives(s) The project development objective (PDO) is to improve quality of the public financial reporting and to improve access to selected enhanced e-government services. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 Improve quality of the public financial reporting. (Action: This Objective has been Marked for Deletion) Three selected Three selected public Financial reports public administration for two selected administration entities that are in pilot sectors are Preparatory work entities that are charge of sectors prepared Work is Work is for two selected in charge of amounting to 10 annually but do underway to underway to public sectors percent of the not include all develop a develop a administration Improved quality of amounting to 10 state budget information on methodology for methodology for entities to annual financial percent of the expenditures, revenue, preparing preparing prepare reporting (Text) state budget prepare financial expenditure, consolidated consolidated substantially expenditures, statements financial assets financial financial APSAS compliant prepare substantially and liabilities, statements. statements. financial substantially compliant with guarantees and statements. APSAS compliant Armenian Public long-term financial Sector Accounting obligations. statements. Standards (APSAS) . The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 Action: This indicator has been Marked for Deletion Improve access to selected enhanced e-government services. Average processing time for public services (hours)(Comment: Reduced time for processing a passport 500.00 350.00 48.00 48.00 48.00 48.00 extension request by the Consular Department of the Ministry of Foreign Affairs. (Hours) Increased access to consular services for issuing citizenship, civil status certificates and statements on any 0.00 0.00 0.00 0.00 5,000.00 7,000.00 10,000.00 10,000.00 10,000.00 existing criminal records (data disaggregated by gender) (Number) PDO Table SPACE The World Bank Public Sector Modernization Project III (P149913) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 Public Financial Management Information Systems (Action: This Component has been Marked for Deletion) APSAS compliant APSAS compliant Financial Financial statements for statements for three selected APSAS has been three selected public adopted by the The accounting public Establish administration Establish preconditions National framework administration preconditions entities are required for Assembly on enables entities are required for prepared on an consolidation of the June 21, 2014, preparation of prepared on an consolidation of annual basis and financial statements but has not yet the consolidated annual basis and the financial include (Text) been applied by financial include substantial statements. substantial public sector statements. information on information on organizations. assets and assets and liabilities, income liabilities, income and expenses, and and expenses, net assets. and net assets. Action: This indicator has been Marked for Deletion e-Governance Solutions for Improved Service Delivery Reduced time for System police dispatch in System procured, productive and emergency situations System to be System to be System to be System under 15-20 minutes implemented time for dispatch 5 minutes 5 minutes (in at least two developed. developed. developed. procurement. and tested. reduced to 10 selected pilot minutes. regions/marzes). (Text) The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 Increased share of 12% of all users 16% of all users 20% of all users citizens (disaggregated of specific public of specific public of specific public 20% of all users of by gender) providing Feedback services provide services provide provide specific public No feedback No feedback No feedback No feedback voluntary feedback on mechanism voluntary voluntary voluntary provide voluntary mechanism in mechanism in mechanism in mechanism in specific public services under feedback on feedback on feedback on feedback on place. place. place. place. (percentage - data procurement. selected public selected public specific public specific public generated from services. services. services. services. system) (Text) An Interdepartment al Working Reduced time to Group was set up transmit in accordance Case CMS is in place; information/messages One week by One week by with the Prime An An Management transmittal Immediate relevant for the pre- special express special express Minister's Decree Interdepartment Interdepartment Full rollout of the System (CMS) immediate (electronic trial proceedings mail (send via mail (send via 30-665-A of June al Working al Working Group CMS. under (electronic transmission). between prosecutors’ post office). post office). 2017 to design Group operates. operates. procurement. transmission). offices in different the technical task regions. (Text) of the digital pre- trial case management system. No gender No gender No gender No gender Gender Gender Gender Gender Gender Increased gender- disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated disaggregated data is data available in data available in data available in data available in data on e- data on e- data on e- data on e- data on e-services available on the use of line ministries / line line line services is services is services is services is is available to e-services which are agencies which ministries/agenci ministries/agenci ministries/agenci available for the available for the available to available to ministry of foreign provided by selected will provide e- es which will es which will es which will ministry of ministry of ministry of ministry of affairs; agencies (Text) services. provide e- provide e- provide e- foreign affairs. foreign affairs. foreign affairs; foreign affairs; Prosecutor’s The World Bank Public Sector Modernization Project III (P149913) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 3 4 5 6 7 services. services. services. Anti-Corruption Prosecutor’s Department; Body; Police. Department; Ethics Anti-Corruption Commission; Body; Police. Police Reduced time to issue the certificate of civil status by the Consular 60.00 10.00 10.00 10.00 10.00 10.00 Department of the Ministry of Foreign Affairs (Days) Capacity Building and Small Capacity Building Interventions Number of trainers for the new needs-based training system in the 0.00 0.00 0.00 0.00 0.00 20.00 40.00 50.00 50.00 civil service established under the Project. (Number) Action: This indicator has been Revised IO Table SPACE The World Bank Public Sector Modernization Project III (P149913)