49458 PROJECT PAPER DATA SHEET Date: July 1, 2009 Task Team Leader: Matthias Grueninger Country: Romania Sector Director: Peter D. Thomson Project Name: Avian Influenza Control and Country Director (Acting): Theodore Ahlers Human Pandemic Preparedness and Response Project Project ID: P100470 Environmental Category: B Borrower: Romania Responsible agency: National Sanitary, Veterinary and Food Safety Authority (ANSVSA) and Ministrv of Public Health (MPH) Revised estimated disbursements (Bank FY/US$nl) (cc FX rate as of March 30,2009: 1~~~=1,357450) FY 12007 12008 12009 12010 Annual 0.10 0.62 3.22 26.36 Cumulative 0.10 0.72 3.94 30.25 Current closing date: 1213112009 Revised closing date [if applicable]: NIA Indicate if the restructuring is: Board approved-x- RVP approved Does the restructured project require any exceptions to Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Revised project development objective1outcomes The objective of the Project is to assist the Borrower in building its capacity to respond to potential future infections of humans by HPAI and other zoonoses, and preparing for, controlling and responding to influenza pandemics and other infectious disease emergencies in humans. Does the restructured project trigger any new safeguard policies? No Revised Financing Plan (US$m.) Source Local Foreign Total Borrower 1.OO 3.OO 4.00 IBRDIIDA 8.00 22.25 30.25 Others 0.00 0.00 0.00 Total 9.00 25.25 34.25 A. Introductory Statement 1. This Project Paper seeks the approval of the Executive Directors to introduce the following changes in the Romania Avian Influenza Control and Human Pandemic Preparedness and Response Project (the Project), Loan No. 4839-RO, Project ID: P100470, and any accompanying amendments to the project's legal documents: (i) removal of the animal health component (Part I) and related management and comn~unicationactivities (relevant parts of Part 111); and (ii) reallocation of part of the freed resources from the animal health to the human health component. 2. The proposed changes affect the Project's Development Objectives (PDO) and results framework in that objectives and results related to animal health activities would need to be deleted from the relevant sections. For the PDO specifically, it is proposed that "and the poultry sector" be deleted and "reducing .the threat [...] by HPAI" be replaced by "building the capacity to respond to future potential infections of humans with HPAI", which will narrow the focus of the project but not deviate from (i.e. not expand beyond the scope of) the PDO of the Global Program for Avian Influenza Control and Human Pandemic Preparedness and Response (GPAI), endorsed by the Executive Directors on January 12,2006 (Report No 34386). 3. The proposed changes would be undertaken pursuant to a request by the Borrower, received on March 31, 2009, for reallocation and partial cancellation of the Loan. Pursuant to this request, the Bank cancelled EUR 7,317,233 of the Loan on April 3, 2009, leaving EUR 3.9 million available from the ANSVSA-managed activities for reallocation to the Human Health component as requested by the Borrower. The cancellation has made project restructuring necessary on the occasion of which the requested reallocation can be undertaken. The request by the Borrower was made against the following background: (a) The institution responsible for the implementation of the animal health component (the National Sanitary, Veterinary and Food Safety Authority - ANSVSA) has proven unable to effectively manage the implementation of the project in accordance with the provisions of the Loan Agreement and the Project Implementation Manual, resulting in significant implementation delays that made the achievement of the (related part of the) PDO unlikely. ANSVSA-managed parts of the project have been under suspension since November 13, 2008, and the requested corrective action required for the Bank to consider the lifting of the suspension was not taken by the set deadline of March 31, 2009. (b) The Ministry of Public Health (MPH) - responsible for the implementation of Part I1 of the project - has requested additional resources to cover a cost overrun in actual bids and to cover expenditures for additional items, not foreseen at appraisal, which are needed to complete the agreed activities under that component. The proposed restructuring would: (i) drop the currently suspended and partially cancelled animal health component and related management and communication activities from the Project; and (ii) reallocate the remaining resources (EUR 3.9 million) from the animal health to the human health component. 4. While the restructured project would no longer address animal health related weaknesses in Romania's capacity to prevent and control future avian influenza or other zoonotic disease outbreaks, the remainder of the project would still make a significant and relevant contribution to Romania's capacity to respond to infectious disease emergencies in humans. In particular, it would help reinstall Romania's capacity to produce influenza vaccines and to treat highly contagious infectious diseases in appropriate intensive care units. B. Background and Reasons for Restructuring 5. The Project was prepared and approved in response to the emerging threat of avian influenza and other zoonoses world-wide and acute outbreaks of avian influenza in Romania. Recognizing the need to act effectively and fast, the Project was financed through an Emergency Recovery Loan under the Global Program for Avian Influenza Control and Human Pandemic Preparedness and Response (GPAI). The Loan for the Project was approved by the Bank on September 8, 2006, signed oil October 5, 2006, and became effective on March 19, 2007. The closing date of the Loan is December 31, 2009. The main objective of the project was to enhance Romania's capacity: (a) to prevent and control Highly Pathogenic Avian Influenza (HPAI) and other zoonoses; and (b) to provide an effective response to a potential (human) influenza pandemic and other infectious disease emergencies in humans (PDO in legal language reproduced in Section C). To achieve this, the project originally included activities under three components (Parts): (I) Animal Health; (11) Human Health; and (111) Public Awareness, Communications and Implementation Support. Project activities included - inter alia - a detailed evaluation of the veterinary services of Romania and related upgrades of contingency plans, improvenlents to the epidemiological capacity, diagnostic capacities in veterinary laboratories, the establishment of an integrated information system, culling and disposal equipment, on-farm biosecurity manuals and advisory services, the equipment of intensive care units, an upgrade of influenza vaccine production capacity, and target communications activities. 6. Project implementation has been exceptionally slow since its approval and has been rated marginally satisfactory since December 2007, downgraded to Marginally Unsatisfactory with respect to progress towards achieving the PDO and Unsatisfactory with respect to Overall Implementation Progress in December 2008. As of March 31, 2009, EUR 1.69million (US$ 2.36 million equivalent), equivalent to 5.7 percent of the original Loan of EUR 29.6 million were disbursed over about 70 percent of the implementation period since the effectiveness date. While the human development component (Part 11) is also experiencing some delays, it is technically on track and expected to achieve the envisaged development objectives. The significant disbursement delay, however, is primarily a reflection of ANSVSA's inability to effectively manage the implementation of the project which was originally designed as an emergency response operation. With 9 months left until Loan closing, the delays in the implementation of the animal health component have reached a level at which it has become evident that: (i) progress under the animal health component towards achieving the PDO has been insignificant until today; and (ii) project activities can no longer be implemented in their entirety before project end. 7. Since effectiveness the Bank has repeatedly expressed its increasing concern about the slow implementation progress in all its post-mission letters and attached aide-memoires and during additional verbal conversations and video-conferences. Due to persistent operational and institutional noii-compliance issues, listed in detail in the Bank's letter of July 28, 2008, threatening the partial suspension of the Loan of the Project, the Bank on November 13, 2008, suspended disbursements of the Loan under Category I (Part I) with the exception of specified lots under one procurement package for which the Bank's No Objection had already been issued, and under Category 111(Part 111) to the extent that it relates to ANSVSA-managed activities and with the exception of withdrawals related to ongoing salary contracts for PMU staff. In its Notice of Partial Suspension, the Bank indicated that it would consider the cancellation of the suspended categories if appropriate action was not taken to address the critical issues by March 31, 2009. Despite significant supervision efforts made to advise ANSVSA on how to fulfill the requirements for the Bank to consider the lifting of the suspension, no such progress was made by ANSVSA. In parallel, the Ministry of Public Health had requested the reallocation of EUR 3.9 million to cover a cost overrun in actual bids and to cover expenditures for additional items needed to complete the agreed activities. The Bank had reviewed and endorsed this request during the Mid-Term Review (MTR) of the Project conducted on November 17-24, 2008. On March 31, 2009, the Borrower communicated to the Bank a request for reallocation and partial cancellation of the Loan. Pursuant to this request, the Bank cancelled EUR 7,317,233 of the Loan on April 3, 2009, leaving EUR 3.9 million available from the ANSVSA-managed activities for reallocation to the Human Health component as requested by the Borrower. This Project Paper proposes to proceed with the requested reallocation and the restructuring of the project that has become necessary as a consequence of the cancellation (and proposed reallocation). C. Proposed Changes 8. Modification of the Proiect Development Obiectives: The original PDO as per Loan Agreement reads as follows: "The objective of the Project is to assist the Borrower in reducing the threat posed to humans and the poultry sector by HPAI and other zoonoses, and preparing for, controlling and responding to influenza pandemics and other infectious disease emergencies in humans. " 9. Dropping the animal health activities under Part I and Part I11 would suggest removing the reference to the poultry sector. The suggested revised PDO would read as follows: "The objective of the Project is to assist the Borrower in building its capacity to respond topotential future infections of humans by HPAI and other zoonoses, and preparing for, controlling and responding to influenza pandemics and other infectious disease emergencies in humans. " 10. The proposed reallocation of resources to the Human Health component to cover cost overruns and a few additional items within existing, agreed activities would not require any additional change to the PDO or results framework. 11. Adiustments to the results framework: Dropping all animal health activities (except for those already completed) would require the following adjustment to the results framework and monitoring indicators: Project Outcome Indicators Original Proposed modrjication Appropriate contingency plans prepared and - dropped - effective capacity to implement contingency plans built. HPAI outbreaks in poultry effectively - dropped - contained. Risk of human infections reduced and Risk of human infections reduced. treatment improved. Isolation and case management for infectious diseases improved. Intermediate Outcome Indicators: Under Animal Health (Part I): all outcome indicators dropped Under Strategic Communication (Part 111):all outcome indictors dropped. 12. Supplemental Letter No. 2: The Supplemental Letter No. 2 needs to be revised accordingly. 13. Revision of Proiect Activities: Schedule 1 of the Loan Agreement needs to be revised to reflect that some activities under Part I (animal health) will no longer be implemented. Animal health parts where expenditures were already incurred will need to be maintained in the legal description of the project in order to keep past expenditures eligible although no further activities under these parts will be undertaken. No changes will be made to the description of Part I1 (human health). 14. Complementaw changes: The following complementary changes with respect to institutional and other arrangements would need to be made and reflected in an amendment to the Loan Agreement: All references to ANSVSA as an implementing agency would need to be removed throughout the document (multiple locations). In the absence of animal health institutions in project implementation, a Project Steering Committee (PSC) would no longer be needed. The establishment and maintenance of an effective PSC would be removed as a covenant. Reallocation: An amount of EUR 3.9 million would be reallocated from Category (1) to Category (2). Since this reallocation will be made from a part of the Loan that is currently suspended, the amendment letter will include a statement on the lifting of the suspension (the other part of the suspended amount was cancelled, see para. 7 above). Loan amount: The cancellation of EUR 7,317,233 from Category (1) and Category (3)(a), undertaken on April 3, 2009, would be reflected in a revised total Loan amount to become EUR 22,282,767. EUR Part I (Animal Part I1 (Human Part I11 (a) for Part I11 (B) for Health Health) ANSVSA MPH Loan, original 9,150,000 16,950,000 2,600,000 900,000 Actual expenditures as of March 31,2009. 42,562 1,201,999 222,492 227,324 Expected expenditures based on existing 250,113 842,960 17,600 211,000 commitments (i.e. signed contracts). Cancellation 4,957,325 2,359,908 Reallocation 3,900,000 -3,900,000 Loan, after restructuring 292,675 20,850,000 240,092 900,000 D. Analysis 15. The proposed restructuring will focus future project implementation on areas where institutional capacities and commitment are sufficient to achieve the envisaged, now more narrowly defined, objectives while reducing financing costs to the Borrower. The original objectives in the area of animal health will not be achieved, which will expose Romania to the risk that it might not be fully prepared to prevent and respond to potential future outbreaks of zoonotic diseases. However, during the avian influenza outbreak of November 2007 in Tulcea, Romania has proven the capacity to respond very effectively which - if replicated across the country - would correspond to the originally envisaged project outcome. In fact, the original project concept recognized the existence of "pockets" of high response capacity and intended to elevate the capacity of lagging-behind regions to the capacity level existing in those locations. By dropping the animal health component, Romania has missed the opportunity to make this important upgrade now, but it could probably do so with knowledge available in the country if the required prioritization is made and implementation capacities are installed. Two areas, however, would have benefitted in particular from an internationally assisted project, i.e. the establishment of an integrated animal disease information system and on-farm bio-security measures. Also, the management capacity at ANSVSA headquarters, itself not an objective of this emergency operation but the reason for the partial cancellation, would need to be addressed urgently to ensure state-of-the-art animal health services for Romania. 16. The proposed changes do not raise the environmental category and do not trigger new safeguard policies. No exceptions to Bank policies would be involved in the proposed restructuring / partial cancellation. E. Expected Outcomes 17. The dropping of the animal health component from the Project would make the Project entirely focused on human health aspects of avian influenza, other zoonoses and potential future pandemics. Required adjustments to the results framework have been presented in Section C above. The two key outcome indicators would now be: (i) Risk of human infections reduced; and (ii) Isolation and case management for infectious diseases improved. F. Benefits and Risks 18. The proposed restructuring will create a more narrowly focused project that will be implemented by an institution with proven management capacity. While the restructuring will not affect the way activities under that component (Human Health) are being implemented - except for providing additional resources through the proposed reallocation - the risk from non- compliance with legal requirements as well as the cost of financing will be reduced for the Borrower. 19. Since the restructuring only involves the downsizing of the scope of the Project within the existing framework, the assessment of the risks associated with the implementation of the Project itself does not change compared to the appraisal stage. The absence of animal health institutions in project implementation will remove the risks related to the lack of institutional coordination. However, in situations of disease outbreaks, such a risk would still exist. Two critical risks, already presented at appraisal, deserve highlighting: (i) Political: The risk of future A1 outbreaks persists, even during or after project implementation. Dropping the animal health component would increase the risk of political fallout in case of a new A1 outbreak in the near f~~ture.(ii) Financial: Romania's shrinking fiscal space in light of the global financial / economic crisis increases the risk of insufficient governmental resources allocated to Project activities. The risks should be highlighted in communication between the Bank and the Borrower.