Document of The World Bank FOR OFFICIAL USE ONLY Report No: 74372 - LK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SECOND COMMUNITY DEVELOPMENT AND LIVELIHOOD IMPROVEMENT PROJECT CREDIT 46130-LK BOARD APPROVAL DATE SEPTEMBER 10, 2009 TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA May 31, 2013 Sustainable Development Department Agriculture, Irrigation and Natural Resources Sri Lanka Country Management Unit South Asia Regional Office 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. i ABBREVIATIONS AND ACRONYMS A-RAP Abbreviated Resettlement Plan APL Adaptable Program Loan CLG Commissioner of Local Government CP Community Professional CPLTC Community Professionals Learning and Training Centre ESMF Environmental and Social Management Framework GDF Gemidiriya Foundation GoSL Government of Sri Lanka GAAP Governance and Accountability Action Plan IDA International Development Association ICT Information and Communication Technology IL Investment Lending ISDS Integrated Safeguards Data Sheet LSF Livelihood Support Fund MIS Management Information System PAD Project Appraisal Document PDO Project Development Objectives PMU Project Management Unit PS Pradeshiya Sabha PSP Pest Management Plan VDP Village Development Plan VO Village Organization VSCO Village Savings and Credit Organization Regional Vice President: Isabel Guerrero Acting Country Director: Ivan Rossignol Sector Manager / Director: Shobha Shetty/John Henry Stein Task Team Leaders Abimbola Adubi/Parmesh Shah ii SRI LANKA SECOND COMMUNITY DEVELOPMENT AND LIVELIHOOD IMPROVEMENT PROJECT TABLE OF CONTENTS Page A. SUMMARY .................................................. 1 B. PROJECT STATUS ...................................... 2 C. PROPOSED CHANGES ...................................... 4 D. APPRAISAL SUMMARY ......................... ........ 11 Annex 1: Key achievements of project in Phase I and II........................... 12 Annex 2: Comparison of pre and post structured project......................... 14 Annex 3: Results Framework and Monitoring........................................... 16 Annex 4: Operational Risk Assessment Framework (ORAF)................... 22 iii Restructuring Status: Restructuring Type: Level one Last modified on date : 04/25/2013 1. Basic Information Project ID & Name P087145: LK: 2nd Comm Devt & Livelihood Improvement Country Sri Lanka Task Team Leader Abimbola Adubi Sector Manager/Director Shobha Shetty Country Director Ivan Rossignol (Acting) Original Board Approval Date 09/10/2009 Original Closing Date: 03/31/2014 Current Closing Date 03/31/2014 Proposed Closing Date [if applicable] EA Category B-Partial Assessment Revised EA Category B-Partial Assessment-Partial Assessment EA Completion Date 05/15/2007 Revised EA Completion Date 04/16/2013 2. Revised Financing Plan (US$m) Source Original Revised BORR 18.00 18.00 COMM 12.00 12.00 IDA 75.00 75.00 Total 105.00 105.00 3. Borrower Organization Department Location Ministry of Finance and Planning Mr. Ajantha Kumarasiri Sri Lanka 4. Implementing Agency Organization Department Location Second Community Development Department of Extemal and Livelihood Improvement Resources Project PMU iv 5. Disbursement Estimates (US$m) Actual amount disbursed as of 05/13/2013 51.61 Fiscal Year Annual Cumulative 2012 0.00 51.61 2013 13.40 65.01 2014 9.99 75.00 Total 75.00 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select Y from the checklist below and update ISDS accordingly before submitting the package. Safeguard Policy Last Rating Proposed Environmental Assessment (OP 4.01) X Natural Habitats (OP 4.04) X Forestry (OP 4.36) Pest Management (OP 4.09) X Physical Cultural Resources (OP 4.11) Indigenous Peoples (OP 4.10) Involuntary Resettlement (OP 4.12) X Safety of Dams (OP 4.37) Projects in International Waterways (OP 7.50) Projects in Disputed Areas (OP 7.60) 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The project development objective of Phase 2 is to enhance incomes and quality of life of the poor households in the most poor divisions in the country while building capacity of government agencies, local governments and community organizations for downward accountability and overall project implementation. 7b. Revised Project Development Objectives/Outcomes [if applicable] The project development objective of Phase 2 is to enhance incomes and quality of life of the poor households in the most poor divisions in the country while building capacity of government agencies, local governments and community organizations for service delivery and overall project implementation. v  SECOND COMMUNITY DEVELOPMENT AND LIVELIHOOD IMPROVEMENT PROJECT RESTRUCTURING PAPER A. SUMMARY The Government of Sri Lanka (GoSL) through the Ministry of Finance and Planning requested for a restructuring of the Second Community Development and Livelihood Improvement Project, Credit Number IDA 4613-CE (dated November 28,2012). The original credit proposed to the Board in March 30, 2004 envisaged a three phase Adaptable Program Loan (APL). The first phase APL achieved and exceeded most triggers while the second phase APL presented to the Board on September 10, 2009 also started well. However in 2010, the policy environment as envisaged in the APL changed with the government deciding to implement a uniform, homogenized and centralized governance architecture with direct control and oversight for all rural poverty reduction programs in the country. As such, Gemi Diriya Foundation which hitherto had served as an autonomous implementation structure of the project became dysfunctional and was proposed by GoSL to be mainstreamed into the structure of its ministries for effective oversight. This necessitates changes in the governance and implementation structure of the project as the policy related performance triggers necessary for phase III of the APL are unlikely to be achieved. These performance triggers which involve horizontal scaling up and policy change were built around the functioning of the federation of the village institutions. But the federations are no longer considered viable and transformational in the context of rural development strategy of the GoSL. Therefore, the latter has decided to develop a converged service delivery approach at the village level incorporating its other rural development initiatives such as Samrudhi and Divineguma programs. This institutional change and policy orientation entail risk to the achievement of the project development objectives as envisaged in the APL unless some structural changes are made in the project. Series of institutional and program assessments were conducted by the Bank team through its field visits and supervision missions and based on these findings, it is proposed to restructure the project (Level 1) There will be a slight change in the Project Development Objective of the project. Another change proposed is the conversion of the credit instrument from an APL to Investment Lending (IL) as the policy triggers are no longer relevant. Moreover, a focus on consolidation of project achievements and providing backward and forward linkages for the community managed activities, in the next one year, will lead to achievement of the project development objectives and ensure sustainability of the interventions made in the project. (Summary of project achievement to date is attached as Annex 1). As the project progress has been hampered over last year and there are changes in the implementation arrangements and components, it is proposed to change the results framework of the project. The other key changes proposed are described below. i. Institutional and Implementation arrangements: The hitherto Gemidiriya Foundation responsible for the day to day implementation of the project will cease to exist. It will 1 be replaced by a Project Management Unit (PMU). This will be housed in the Ministry of Economic Development (MED). ii. Federations of Community Institutions: The project will discontinue with the proposed second tier of institutions such as district, federation of Village Organizations(VO), Community Professionals(CPs), Community Professional Learning and Training Centres (CPLTC) etc. The project will focus on establishing viable producer groups and providing them with backward and forward linkages in order to take advantage of economies of scale. An exit strategy has been developed for the Community Professionals and there will be increased emphasis on capacity building in order to further enhance the sustainability of the Village Organizations. iii. Component Changes: Based on the experiences of last three years, implementation modalities in some of the components will be revised to remove identified constraints on disbursements and to allow for impact. Details of such changes are provided in the section under the proposed changes. iv. Safeguard Changes: As part of restructuring, the project will trigger following policies; OP/BP 4.04-Natural Habitats, OP/BP 4.09- Pest Management, and OP/BP 4.12- Involuntary Resettlement. As such, pest management and abbreviated resettlement plans (A-RAP) for subprojects have been prepared while the current Environmental and Social Management Framework (ESMF) and Integrated Safeguards Data Sheet (ISDS) were updated and disclosed on April 17, 2013. v. Funds Re-allocation: Funds will be re-allocated across components to accelerate implementation of infrastructure sub projects which have been constrained by inadequate funds for implementation and engagement of technical service providers for long term supervision. Also provision will be made to strengthen the Operation and Maintenance (O&M ) unit established at PS and the M&E / MIS system. The Budget will also be streamlined and focused on achieving the objectives of the various components. vi. Legal Covenant/ Financial Agreement: The Financing Agreement of the project will be modified to accommodate all the above changes and will form the basis for the implementation of the restructured project. The changes envisaged in the project are summarized in Annex 2. B. PROJECT STATUS GoSL has a long term strategic objective of accelerating rural development, increasing growth opportunities and reducing poverty in the poorest regions of the country. The World Bank has supported this approach through a 12 year Adaptable Program Loan (APL). Phase 1 of the APL (US$51Mn) focused on building and strengthening community level organizations and developing institutional mechanisms for direct funding to community organizations. The first phase was completed successfully in March 2010 by establishing 1034 Village Organizations (VOs) and delivering benefits to over 200,000 households in 7 districts. The Implementation 2 completion report of Phase I has shown that it exceeded most results as envisaged and complied with the five performance triggers. The implementation of Phase 2 with IDA credit of US$75 Mn, started well in December 2009. However, from April 2010, there were changes in government orientation towards community development programs with direct control and guidance by government agencies. This rendered the implementation and design of the APL instrument inappropriate as envisaged in the original design. The Gemidiriya Foundation as constituted and the proposed second level federated institutions were not considered appropriate to achieve the objective of rural development as part of the new policy of GoSL. This rendered the policy triggers of the APL irrelevant. These changes also slowed down project activities and the functioning of the existing institutions. Since then, there have been several World Bank implementation support missions that reviewed the implementation progress, resolved some identified issues and reached agreements with GoSL on critical areas for adjustment and restructuring in order to move the project forward to enable achievement of development outcomes. As a result, there has been significant progress and the project is rated moderately satisfactory on the achievement of PDOs and the overall implementation progress. There was accelerated physical progress for the implementation of community infrastructure and inter- connectivity projects. A total of 4,619 sub projects were completed out of a total of 4,744 started during phase 1 indicating a completion rate of 97.0%. Under phase II, the project embarked on 3,554 infrastructure sub projects and 1,513 are completed. Many positive steps were also taken to support producer groups in piloting Village Development Plans (VDP 2) and ongoing technical support activities. The micro finance component of the project has helped in establishment of Village Savings and Credit Organizations (VSCOs). The project has promoted 1,990 VSCOs comprising 60,997 small groups managing own savings of US$ 3.68 million and Livelihood Support Fund (LSF) of US$ 14.07 million. These organizations have so far provided financial support through loans to their members for livelihood development to extent of $38.21 million. It was however observed that the proportion of VSCOs, with Portfolio at Risk PAR of more than 5%, has marginally increased from 60% to 63%. The project restructuring will evolve a mechanism to improve the repayment rate. With increasing support of the Bank, the project has now developed effective linkages with line ministries in order to extend their services to project beneficiaries on a continuous basis. (see summary of project achievement in annex 1) Although the project has made significant progress in program management, there is one risk of poor organizational management and motivation of the staff members which has been accentuated in last one year. This relates to top down management style, high staff turnover and absence of a grievance handling system for staff. This risk needs to be addressed so that implementation progress is not hampered and there is high likelihood of achieving development objectives. The specific mitigation measures proposed are as follows: The Bank has requested the project to provide a quarterly report of staff turnover beginning March 31, 2013 in order to forestall the possibility of deliberate retrenchment of staff. The project is furthermore mandated to retain most of the current staff for the remaining duration of the project to enable the restructured project to achieve development objectives and be implemented smoothly. The Bank has also worked with the project team to develop a grievance redress mechanism to support the implementation of the project. 3 C. PROPOSED CHANGES (i) Project's Development Objectives The PDO will be modified slightly to reflect the new emphasis and is as indicated below: Original PDO * The project development objective of Phase 2 is to enhance incomes and quality of life of the poor households in the poorest divisions in the country while building capacity of government agencies, local governments and community organizations for downward accountability and overall project implementation. Proposed PDO * The project development objective is to enhance incomes and quality of life of the poor households in the poorest divisions in the country while building capacity of government agencies, local governments and community organizations for service delivery and overall project implementation. (ii) Results/indicators Please see Annex 3 for the revised Project Result Framework and Indicators. (iii) Components Component A: Intra-Village Development * The project has promoted a total of 2,044 Village Organizations (VOs) in phase I and II. These VOs were originally registered as "peoples companies" but with changes in company law of Sri Lanka, all the legal provisions applicable to "public companies" are applicable to VOs, resulting in additional costs and compliance efforts on the part of the communities. The VO's mode of registration will be changed according to government act on Divineguma or as societies. However, VOs that intend to continue as Village companies will be allowed to exist as companies and given appropriate technical support. * The current level of capitalization of VSCOs is enough to provide financial access to about 40 % of poor households in the area and the credit demand from their members is growing with increasing emphasis on producer groups and other livelihoods initiatives. Therefore VSCOs will help their members' access additional resources by leveraging loans with Samurdhi, other community financing agencies and commercial banks. VSCO-Bank linkage will also help them achieve long term sustainability and mainstream them with the formal financial sector by transferring their risks to the well regulated commercial banks, even while retaining their local character. * The second-generation community institutions - Village institutional federations, Community professional centres, etc. will be discontinued. The VOs will be restructured to align with the project objectives of enhanced livelihood and market linkage for Producer Groups. * The focus of the village infrastructure sub component will still be on simple and affordable infrastructure which can be operated and maintained by the communities. However, this has been reduced to a maximum of 4 sub projects for each VO while contribution is also reduced to 20% for the first village 4 infrastructure and 10% for subsequent ones. The contribution of estate communities is made notional and reduced to 5%, all of which include labour, cash and materials. Component B: Inter-village Connectivity Development * The change proposed in this component is to limit the number of infrastructure sub projects in the targeted Pradeshiya Sabhas (PS) and provide some funds to facilitate the establishment and strengthening of an Operation and maintenance (O&M) unit in each PS. This unit will be responsible for maintenance activities of interconnectivity projects in collaboration with the communities. The interconnectivity projects will also be reduced to ensure that only such investments are made which have sound implementation and maintenance plan and can be completed within the project life. The community cash contributions will be reduced to zero but in- kind contribution of the communities will be retained to ensure their participation. The project will also allow for central procurement where materials are scarce or there is advantage of economies of scale for the communities, and direct contracting for complex projects in difficult terrains. However, these are to be carried out in agreement with the communities who must also participate in the operation and maintenance of the infrastructure. * Component B3 will be refocused to de-emphasize vertical network of Federation and livelihood activities. As such, VO federation, VSCO federation and Producer group federation will be discouraged in favor of emergence of organic producer groups that will be assisted technically and technologically for linkage to organized private sector, banks and government agencies for services. Funds from this Component will partly provide for the establishment and strengthening of the O&M units in PS, and partly for a new sub component under Component C, focusing on supporting Producer Groups. Component C: Public, Private and People Sector Partnership * There will be increased focus on Producer groups and forging an effective backward and forward linkage with government and private sector agencies for value chain based partnerships for technical support and marketing. * The component will support Development Marketplace type events for identifying alternative livelihood models and innovations. Funds will be allocated to support organizing the Development Marketplace and productive partnerships for organizing producers and linking them with public, private and SME sectors engaged in farm research, technology extension, input supply service provisioning, processing, retail value chains and exports. * The component will also support strategic partnerships with commercial banks for fostering VSCO-Bank Linkages. Funds will be provided to set up dedicated 'Divineguma Cells' in partner commercial banks, training and exposure of commercial bank staff, establishing help desks at bank branches, etc. Component D: Project Management and Monitoring * This component will be reorganized to support a strategic unit for project management that will link the district level staff with a strict time bound appraisal and for providing the required programme oversight and technical support, improving performance of VSCOs, 5 assisting VOs to prepare livelihood plans, facilitating promotion of producer groups, promoting convergence with government programs and coordinating with banks and other market linkages. * Monitoring and Evaluation (M&E) and Management Information System (MIS)-- Original design objectives remain relevant. But given the lack of progress in process monitoring, system development and utilization, this subcomponent will refocus on internal learning as well as enhancing information linkages across the project and at community levels. Besides making critical improvements to the existing web-enabled MIS, it will provide Information and Communication Technology (ICT) and system development support to microfinance and livelihood development units of the project and assist VSCOs and Producer Groups forge information and technical linkages with commercial banks and other development partners and services. Component E: Convergence and Policy Support * Considerable investments have been made across the nation through various new and old programs in the area of community development and rural livelihoods. The government is also implementing similar livelihood programs and safety net products such as Samurdhi, Divineguma etc to target the poor. This component will mainstream the project into government established Divineguma and Sarmurdhi programmes. The component will support government to develop policies, rules and procedures to harmonize livelihood programs effectively. Technical assistance will be provided in order to develop a model and formulate an effective institutional arrangement; train village level officers of project, Samurdhi and other departments, to assist village empowerment and livelihood activities. * Given the shift of focus from federated institutions, the future emphasis of the project will be on sustainability and ensuring that its Village Organizations, VSCO, and Producer groups are self-sustaining and are effective agents to promote sustainable livelihoods of the various communities. * In addition to above, this component will focus on facilitating project beneficiaries to get access for supports from line ministries to improve their livelihood activities through technical assistance and their ongoing programs. * It will allocate funds for training and capacity building of project staff which will enable them to play high quality facilitation role. (iv) Safeguards Environmental and Social Management Framework (ESMF) of the Project Appraisal Document (PAD) stipulates all the required procedures and tools to ensure safeguard compliance in project related infrastructure interventions. However, with restructuring, investments on inter-village connectivity subprojects may trigger OP/BP 4.0 (Natural Habitats), OP/BP 4.09 (Pest Management), and to some extent OP/BP 4.12 (Resettlement). Therefore, pest management plan and abbreviated resettlement plans (A-RAP) for subprojects have been prepared while the current ESMF and ISDS have also been updated. All the instruments have been disclosed in country on April 17, 2013 and at Infoshop. Technical assistance/training will be provided to the staff to enhance their knowledge/skills to prepare pest management plans and abbreviated resettlement plans. 6 (v). Institutional arrangements The design of the project established Gemidiriya Foundation as the implementation agency with the envisaged gradual transfer of some of its function to government agencies. However the current policy orientation of the GoSL plans for a centralized governance structure with direct control and oversight for all rural poverty reduction programs across the nation. In this context, the independent Foundation established in APL1 was made dysfunctional. The Foundation will cease to exist and its role and functions transferred to a Project Management Unit (PMU) under the Ministry of Economic Development (MED). The oversight function will be performed by the Ministry of Economic Development (MED) and the PMU will have an advisory committee made up of multi stakeholders from different sectors of the economy in order to leverage effective linkage with the private sector and generate ideas that can sustain the income generating setting of the VOs. (vi) Governance and Accountability The Governance and Accountability Action Plan (GAAP) of the project has been updated in line with the envisaged risks of the restructured project. The governance framework tools developed under Gemidiriya Foundation will also continue to be applied and adapted to the new institutional framework proposed. Community Operational Manual (COM); Village Grading System; Community Assessment Process (CAP); Appraisal and Monitoring Teams; and Internal and External Auditors, are all tools and procedures that will continue to be used to hold community based organizations accountable. Given the increased number of complaints from the public and project staff, strong emphasis will be placed on ensuring that an efficient and effective Grievance Redress Mechanism is developed and made fully functional. Records of public complaints will be properly collected, maintained and data on complaints/grievances publicly disclosed to include actions taken. A conflict resolution and grievance handling system for project staff will be anchored by the Human Resource Department of the PMU, who will develop a clear set of guidelines and procedures to be followed by staff in the event of any form of grievance. The procedures and guidelines will form part of the Staff Code of Conduct to be fully disseminated and internalized by all project staff. (vii) Project Risk A major risk to the restructured project is the uncertainty about the future implementation modalities of the Divineguma bill that has just been passed by the parliament of GoSL. The new law intends to mobilize rural people into national development process at community level by establishing Divineguma department, Divineguma community based organizations, a coordinating network at district and national level and establishment of community based banks and banking societies. All these processes and the operations of the organizations will be controlled and monitored centrally at the national level. This might change the status of community empowerment from being organic and community governed, to government controlled and administered. It may also be counterproductive and disempowering if all community based organizations are forced to register as Divineguma societies or the registration is used as the basis for access to government services. This will have implication for the autonomy of the established 2,044 VOs under the project and the 7 VSCOs that are managing their microcredit operations. Although the GoSL through the Ministry of Economic Development (MED) has assured the Bank that the passage of the Bill and its implementation will not affect the independence of the VOs, and that VSCO will be allowed to operate unhindered, the Bank team is already putting measures in place to prepare for any eventuality. Pro-actively, the restructured project has emphasized the enhancement and economic empowerment through increasing scale of the livelihood activities of the VOs and enhancing the capacity building/ linkages of the producer groups to private organizations. This will ensure the sustainability of existing activities. The exit strategy of the VOs has been developed and is being operationalized and piloted among the phase I villages. The project is also currently assisting the Divineguma unit on capacity building of its staff, rolling out its GIS and computerized MIS and is collaborating effectively with its new staff on community sensitization and mobilization. Other measures include the allocation of more resources into the alignment of the project operations to the demands of Divineguma department and efforts are being made to link the VSCOs with commercial banks and community oriented financial agencies. Finally, the legal agreement will indicate the continuous autonomy and non- interference with VSCO activity and funds as a safeguard for continuous operation of VSCO. Other envisaged risks of this operation and their mitigation are indicated in ORAF Annex 4. 8 (viii) Financing Project Costs (US$m.) Components/Activities Current Proposed Comments An increase in allocation Component A: Intra-Village 59.4 61.44 is proposed to caterfor DevelpmentFundimplementation of VDP2 Development Fundsustainability Al. Dev. And Strengthening VOs and Estate activities of the VOs. The Communities same number of VOs A2. Village Development Fund (VDF) envisaged during the project design will still be covered. Component B: Inter-Village 30.0 21.94 Since horizontal scaling Connectivity Development Fund (With up of institutions ceases restructuring, Component B3 on Inter- to exist, the allocationfor eIn and Livelihood this component is activitesreduced. But a Promotion is replaced with a new B3 on readjustment within the establishment of O&M unit in PS) component allocates more B 1 Strengthening of PS institutions funds to interconnectivity B2. PS Inter Connectivity Fund and strengthening of the Infrastructure sub project PS in order tofurther B3. Establishment of Operation & strengthen the Maintenance unit achievement of the component objectives. A new sub component on establishment Of Operation and maintenance unit is also introduced to ensure sustainability of sub Iprojects. Component C: Public and Private 4.4 5.5 There is an increase Sector Partnerships (now to incorporate a allocation offunds for new sub component on Producer Group strengthening the Producer groups and as jsuch increase the C L CB of Project probability of achieving C2. Livelihood & Business Support component objectives. C3. Producer Group Development__________ Component D: Project Management T 7.8 10.00 This is increased to allow and Monitoring for project oversight of D. Project Coordination and Management Phase I & VOs D2. Project ML&E Inp. Appraisal TeamA Component E: Convergence and Policy 3.4 6.12 With increasing emphasis Support with National Programs on government systems, EL Technical Assistance the allocation will allow E2. VDF for Samurdhi VO convergence with existing government programmes and agencies. 105 105 __________ 9 (ix) Financing Plan The financial arrangements remain the same and the same funds flow pattern will be followed. However, a new funding ratio is proposed for IDA, GoSL and Community to support Development and Operation activities. It is proposed to change the ratios of IDA to 80% and 70% respectively for Development and operating cost instead of the original 75% and 65%. This is done so as to accommodate the reduction in community contribution. Delay in payment of community contribution resulting from increasing cost burden on the communities has been identified as a major implementation constraint on the project. (x) Disbursement arrangements: No changes in the disbursement arrangements C1. Reallocations in SDR Category of Expenditure Allocation of Loan Current % of Financing (XDR million) Disbursemt. (XDR) Current Revised Current Revised Current Revised Grants and Sub- Unchanged 40.3 38.7 18.2 75 80 grants Goods, works, Unchanged 10.1 11.7 8.1 65 70 consultants' services, training and incremental operating cost for the project Total 50.4 50.4 *The team is recommending a change in funding ratio in order to accommodate the reduction in community contribution. Low ability to pay community contribution was identified as a factor slowing down the pace of implementation. Financial management The PMU which replaces the Gemidiriya Foundation will have the overall responsibility for FM activities. It is envisaged that the existing FM staff of GF and other institutions would continue to function in managing the FM arrangements. At the village level, the services of CRPs would be critical to manage the FM arrangements of VOs. Hence, the capacity building programs targeted for CRPs will include FM related training as well. Broad FM arrangements would remain the same such as fund flow, disbursement arrangements, financial reporting, accounting, internal auditing and external auditing. However, Foundation which becomes a PMU, and VO's in the project would cease to be governed under Company law, but would be primarily operated under prevailing GoSL structures, regulations and relevant procedures as applicable under the new institutional framework proposed. 10 Procurement There will be no change in the procurement arrangement. C2. Closing date The closing date for the project will not be extended and remain March 31, 2014. Currently, there are no overdue audit reports for the project. D. APPRAISAL SUMMARY The envisaged changes are noted in the Result Framework as well as the ORAF attached as Annexes 3 and 4 respectively. 11 Annex 1: Key achievements of project in Phase I and II Indicator Phase 1 Phase 11 Total Remarks Number of villages organizations formed 1,034 1,010 2,044 Number of House Holds benefited 1,86,861 1,66,329 3,53,190 Amount of funds disbursed to VOs ( Rs Mn) 4,619 1,572 6,191 Intra village infrastructure development activities No of sub projects completed, operated and 4,491 1,513 6,004 maintained successfully Cash contribution collected for sub projects by 342.13 82.95 425.09 Communities (Rs Mn) Labor contribution collected for sub projects by 403.44 129.13 532.57 Communities (Rs Mn) I I I _ I Village Savings and Credit Organization(VSCOs) Fund transferred to VSCOs (RS Mn) 1,257.2 658.8 1,916 Amount of loans issued (RS Mn) 4,091.3 1,001.83 5,093.13 Number of beneficiaries accessed project loans 94,881 54,176 1,49,057 (HHs) Loan interest earned by VSCOs (Rs Mn) 364.9 74.2 439.1 Amount of savings by VSCO remembers (Rs Mn) 369.1 166.5 432.0 Amount of loan security fund (Rs Mn) 187.7 30.67 218.39 PS-interconnectivity program - Project is currently supporting 10 PSs and each PSs has an allocation of Rs 200 Mn for subproject implementation and Rs 10 Mn for institute development. This program has developed good relationship between community and political authority and hold PSs accountable e for their services. Number of PSs developed and implemented 4 6 10 Institution Development plans Number of PSs initiated O&M units 4 6 10 Number of PS has own website 3 4 7 Number of subproject started 23 4 27 Number of subproject completed 12 12 Livelihood improvement activities- project has started implementing productivity improvement plans, together with other stakeholders for key commodities such as paddy, maize, dairy, and export agriculture crops. Results were analyzed for the test model of maize in 2012 Maha season. Number of beneficiaries formed in to producer 8,636 8,636 groups Area of cultivation of seed paddy with project 182 182 In last Maha interventions (ha) season Area under paddy production with project 7,189 7,189 In last Maha contribution(ha) season 12 Incremental income from paddy (Rs Mn) 108.3 108.3 In last Maha season Net income generated from newly started passion 23.04 23.04 Started in fruit cultivation ( Rs Mn) 2011 Increased income from newly established dairy 73.4 73.4 units ( Rs Mn) Area of maize cultivation under productivity 2,000 2,000 In Maha improvement plans ( ha) 2012 average yield increased from 5.5 to 9.5 MY/ha. Incremental income per season from maize 84,370 84, At 30 Rs/Kg cultivation ( Rs/ha) 370.00 rate Convergence with other government programs: Project is supporting implementing Divineguma program in project villages, by providing planting material, coordinating training programs, and supporting selection beneficiaries. In addition, project is working as the vehicle for bringing other line ministries and private agencies support for project beneficiaries and providing flat form to conduct their program in the village 13 Annex 2: Comparison of pre and post structured project Governance and Pre- Restructuring Post -Restructuring Component A Lending Instrument APL IL Gemidiriya Foundation Operating and Governance Scrapped and replaced by PMU with structure Advisory Committee Structure of VOs Registered as Village VOs to be registered as Societies Companies/ Public under MED Companies Functions of VOs VOs function as stand Last mile people's institutions for alone Institutions inclusion and service delivery managing project activities channel for safety nets and using project funds Government Schemes VSCO Focus of VSCO was solely Expanded role of VSCO for overall on project funds financial access through strong linkages with financial sector Second/District level VO Federation, NCPLTC Focus on Producer Groups and exit institutional Federation strategy for CPs envisaged O & M of Intra village Not Systematic Funds & CB to be incorporated for Infrastructure Intra infrastructure. Component B Interconnectivity Coverage of 10 PS and Coverage of PS and number of projects proposed 69 sub-projects subprojects to be reduced to accommodate completion date. Also fixed allocation of funds to PS will become flexible. Change in ratio of contributions O&M unit Operate on ad hoc basis O&M unit to be established and funded in PS Type of Infrastructure Focus on Social and Focus only on Productive Sub Projects productive infrastructure Infrastructure Project Management Pre Restructuring Post Restructuring M&E and MIS Improving and in place To be modified to take emerging challenges 14 Results Indicators In Place To be revised in view of Changes Funds Allocation and Funds allocation in favor of revision of IDA/GoSL Producer groups, O&M, etc. ratio of grants Sustainability Strengthened income generating activities and more focus on exit strategy for VOs Extension of Project Closing date March 2014 Proposed closing date December Closing date 2014 Legal Covenants Need for Change in legal framework Convergence Pre Restructuring Post Restructuring Convergence with Pilot outlook in Best practices and lessons Government and implementation substantially scaled up through other private agencies VOs. Effective mainstreaming to Samurdhi and Gamaneguma programmes 15 ANNEX 3: Results Framework and Monitoring SRI LANKA: SECOND COMMUNITY DEVELOPMENT AND LIVELIHOOD IMPROVEMENT PROJECT Project Development Objective (PDO): The project development objective of Phase 2 is to enhance incomes and quality of life of the poor households in the most poor divisions in the country while building capacity of government agencies, local governments and community organizations for downward accountability and overall project implementation Revised Project Development Objective: Remains the same - CHECK D=Dropped Cumulative Target PDO C=Continue Values** NOTES ON CHANGES, Level Q N= New Unit of DEFINITION and Responsibility for Results 0 R=Revised Baseline Frequency I Measure YR YR 3 YR YR Data Source/ Data Collection India 2 (end 4 5 Methodology ors* '12) Indicat R. At least 20% increase in income against % 0 n.a. 20 Baseline, Needed to be more realistic with the Independent baselines or One: base year for 50 % of targeted households increas % End of policy environment and account for and assessment with by the end of project e project other changes taking place in controls for Phase II economy affecting livelihoods villages. O Will also use Phase I Covers both all Phase I and Phase II impact assessment for households. baseline for SCDLIP Phase I villages. Indicat R. At least 70 % of targeted households % HH 0 43% 70 Yearly Need to assess actual utilization of M&E unit together or Two: utilizing improved community intra- % infrastructure for intended beneficial with District M&E to village infrastructure and social services for and meaningful purpose. Therefore do regular small intended purposes the word "benefiting was replaced survey. by the word "utilizing". ED Will need to be done by small survey of random sample of village HH. Also impact assessment will measure independently. Indicat C. At least 70 % of PS have implemented % 0 or r intra and inter-connectivity sub-projects in Three: accordance with the agreed rules Indicat N. At least 60% of villages are utilizing % of 0 60 Yearly Same as for Indicator 2 above PS unit, with M&E or 4: interconnectivity infrastructure for villages % unit intended purpose N. Establish O&M Unit and O&M fund % of 0 60 Quarterly PS information system PS Unit in 60% project PS PS % C. At least 70% of PS have developed % of Participatory process and downward PS accountability mechanism including score cards as included in the Institutional Strengthening Plan C. At least 50 % of project villages benefit % of from linkages with other government villages program including infrastructure D. At least 50 % of VO federations and Federations are not pursued any VSCO federations (Phase 1) are rated as A more. or B, and are providing the services for livelihood promotion to their members C. At least 75 % of Phase I and Phase II % of 50% 75 Yearly It captures overall sustainability and District units, VOs are rated as A or B VOs (Ph 1) % functioning of VOs and extent of Institutional, and village development. M&E unit. Standard VO grading and GAAP systems provides in depth data. MIS should provide rapid analysis. INTERMEDIATE RESULTS Intermediate Result (Component A): This component would build institutional capacity ofpro-poor local institutions, and fund village development and livelihood-related investments at the village level. It will have two sub- components: (a) Development and Strengthening of Village Organizations and Estate Communities, to help develop and strengthen self-reliant and self-managed people 's organizations; and (b) Village Development Fund, including capacity building, community infrastructure and social services, and livelihood support activities. Revised Intermediate Result (Component A): Will not change Intermedi R. At least 80 % prioritized and approved sub- % of sub- 0% 15/ 80% Monthly Clarification only. ate [ projects are completed (and ratified by the Maha projects 46 Result Sabha) operated and maintained by VOs 17 indicator One: Intermedi C. At least 80 % of VSCOs (Phase 1 & 2) with an % of Phase 1 QPR 80% Fundamental VSCO parameter. Target M&E Unit of Project ate on-time repayment rate of 95 % and above, and VSCOs 3 is revised downwards from 80% to 70% and VSCO Database Result PAR of less than 5% on both internal and external Ph 1 due to change in policy environment indicator ln75% and uncertainties surrounding the continuous patronage of VSCO. Two: Ph2 97% N. 70% of VOs covering operational costs % of This measures VO Sustainability VSCOs C.. At least 65 % of households in the poor and % HH Inclusion of loan coverage to poor poorest category as identified through accessing participatory identification of poor and poorest methodology have accessed at least once VSCO loans and engaged in the economic activities (Phase 2) N. 80,000 project households' livelihoods get direct No. HH To show VSCOs also provide direct M&E Unit of Project benefit from VSCOs. support to livelihoods. C. At least 75% of the special group beneficiaries % of 75% Quarterly/ Focus on OTG targeted (disabled, one-time grantee) have OTGs monthly benefitted from livelihood funds and started either employment and/or income generating activities (Phase 2) C. At least 50 % of decision-making positions % of 50% Half-year Keep as is. (Chairperson or Treasurer of various sub- positions committees) are occupied by women, at village level C. At least 50 % of eligible youth received skills % of 50% Quarterly Keep as is enhancement and have been linked to employment targeted (includes Phase 1 and 2) youth C.: At least 75% of village organizations 75% Annually Higher level sustainability indicators as graded as "A Grade" or " B grade " (includes no federations remain. The indicator is Phase 1 and 2) continued but now moved to be one of the PDO indicators Intermediate Result (Component B): This component will promote inter-village development to consolidate and sustain investments generated at the village level; and will consist of three sub-components: (a) Strengthening ofPradeshiya Sabha Institutions - to plan, implement and manage their inter-village and cluster development investments; (b) Pradeshiya Sabha Interconnectivity Fund to finance inter-village infrastructure and social service subprojects, institutional and incentive fund. And (c) Inter-village federation and community resource center development 18 Revised Intermediate Result (Component B): REVISED This component will promote inter-village development to consolidate and sustain investments generated at the village level; and will consist of TWO sub-components: (a) Strengthening ofPradeshiya Sabha Institutions - to plan, implement and manage their inter-village and cluster development investments; and (b) Pradeshiya Sabha Interconnectivity Fund to finance inter-village infrastructure and social service subprojects, institutional and incentive fund. Intermedi D.: At least 70 % of Pradeshiya Sabhas have Not relevant given that ate accessed funds and have completed at least one federation is not in existence Result w cluster level sub-project as per the rules agreed and cluster level projects are not indicator within two years funded again. One: Intermedi N. 70% of planned & approved % sub- 70% M&E Unit of Project ate Interconnectivity sub-projects within PS have projects The Number will be defined Result - been completed based on target for phase II. indicator Two: R. At least 70% of PS have developed 70% Data base of PS and Participatory process and downward M&E Unit of accountability mechanism including score Project . cards as included in the Institutional Strengthening Plan N. At least 50% of PS are linked with relevant % of 50% This is to ensure proper line agencies and Provincial Council Technical project maintenance and operation of units for O&M backup support for constructed PS all sub projects. infrastructure under the interconnectivity program. D. At least 70% of village organizations covered Federations are no longer active during Phase I have formed network of federations at cluster and district level and have been linked to private sector and/or other partners for income generation/employment activities D. At least 50% of federations (including VSCO Federations are no longer active federations) established are covering their operation and management costs within three years of operation D. At least 50 % of HHs (Phase 1) have benefited Federations are no longer active from value adding activities through economic - but elements of this on federation (under Phase 1) producer groups now in component C. Intermediate Result (Component C): This component will (a) support and strengthen the project teams, public sector agencies and other stakeholders at the national, provincial, district, divisional and cluster level in operationalizing of the CDD approach to respond to the needs of the poor; and (b) Livelihood and Business Support for building institutional linkages, partnerships, livelihood options and employment opportunities. 19 Revised Intermediate Result (Component C): This component will (a) support and strengthen the project teams, public sector agencies and other stakeholders at the national, provincial, district, divisional and cluster level in operationalizing of the CDD approach to respond to the needs of the poor; and (b) strengthen Financial, Livelihood and Business Support for by building institutional linkages, partnerships, livelihood options and employment opportunities Intermedi D. At least 12 partnerships established and linked Federations are no longer active ate with the federation - REPLACED BY BELOW Result E indicator One: Intermedi N. At least 100 partnerships established and No. 100 Partnerships established with ate linked with the producer groups part individual PGs Result E ners indicator hips Two: N.At least 60% of PGs meet their operational Nos 60% This could mean membership expenses from regular sources of cash flows fees, sales revenues, grants, etc. D. At least 50 % of VOs have either leveraged or Sustainability and linkage by regenerated at least 40% of the original VDP VOs. VO Sustainability treated funds within four years of registration (including in new indicator at PDO level. Phase 1 and 2) Original indicator was ambitious N. VSCOs leverage at least US$ 1 million from $No $0 Imill Samurdhi Banks and the Commercial Banks for their member clients N. More than 50% of linkage transactions (bank % MIS systems for MF and LH and business partners) carried out with use of will be established and dedicated MIS for MF and LH functioning Intermediate Result (Component D): This component would facilitate overall coordination, planning, implementation, compliance check and quality, learning and monitoring of the project at the national, provincial level and district level. Revised Intermediate Result (Component D): Remains the same Intermedi R. Project Grievance redressal system Qual Project rather than Gemidiriya ate functioning and 80% of complaints received ity Foundation (GDF). Result w are addressed within agreed service standards indicator One: R. Community Operation Manual is revised by Qual Revised to change COM on needs participatory process to address policy ity basis rather than annual, but changes and incorporating recommendations emphasis community of governance team assessments, process involvement 20 monitoring and other field feedback forum. Intermedi R. At least 70 % of GAAP [process % 70% Process monitoring not done. ate monitoring] recommendations implemented Clarification changes Result - by project management though taking actions. indicator Two: C. At least 80 % of GAAP recommendations % 80% This complements the indicator implemented and reviewed annually with the above, from community level representatives of the communities - D. Finance and audit committee of the board No conduct minimum four reviews per year D. At least 70% of Divisions and District and % HAVE TO CHECK, CAP IS national/regional facilitation teams receiving NOW MORE TOP DOWN positive scores from communities through EXERCISE? CAP N. Quarterly Progress Reports (QPR) and Qual To measure improvement of a Quarterly Implementation Monitoring functioning MIS Matrix (QIMM) prepared using data primarily from web-based MIS Intermediate Result (Component E): This component will provide technical assistance to Gamaneguma Samurdhi programs to adopt the CDD approach; and improve pro-poor orientation and fund VDPs ofdemonstration villages. Revised Intermediate Result (Component E): This component will provide technical assistance to strengthen village linkages to government programs, and to Gamaneguma Samurdhi programs to adopt the CDD approach; and improve pro- poor orientation and fund VDPs of demonstration villages. Intermedi D. GOSL has issued a government order Policy Company policies have changed, ate adopting the village level institutional and model as yet not planned to Result w mechanism and procedures as described in the mainstreamed in government indicator COM at the national level and applicable for policy (some may be considered other poverty reduction and developmental under Divineguma Bill) One: program N. At least 40 Percent of VOs involved in % of 40% Captures strengthening of delivering government livelihoods programs all linkages with government VOs agencies to provide support to VOs. Intermedi R. At least 40% of Gama Neguma and %50% Slight scaling down of target, to ate Samurdhi villages receiving and managing target be more realistic given the new Result 0 direct funds are planning, implementing, and village policy environment. The former indicator maintaining sub-projects according to the rules s percentage was 50%. Two: set out in the COM R. Participatory process and social % Slight scaling down of target, as accountability tools (GAAP and CAP) as tar2et more realistic. It was formerly developed by the Project are practiced by at village 50%. least 40% of GN demonstration and Samurdhi s villages covered under Phase II 21 Annex 4: Operational Risk Assessment Framework (ORAF) SRI-LANKA- SECOND COMMUNITY DEVELOPMENT AND LIVELIHOOD IMPROVEMENT PROJECT P087145 Project Development Objective(s) The project development objective (PDO) of Phase 2 is to enhance incomes and quality of life of the poor households in the most poor divisions in the country while building capacity of government agencies, local governments and community organizations for downward accountability and overall project implementation PDO Level Results lAt least average 20% incremental income against base year for targeted households by the end of project. Indicators: 2. At least 70 % of targeted households utilizing improved community intra-village infrastructure and social services for intended purposes. 3. At least 60% of villages are utilizing interconnectivity infrastructure for intended purpose. 1. Project Stakeholder Risks Rating Moderate Description: Risk Management: Borrower Relations. The GOSL through the MED has assured the Bank that the passage of the Bill and its implementation will The GoSL Vision for Development (Mahinda Chintana) not affect the independence and empowerment of the Village Organizations. Also as a condition for the recognizes poverty reduction and village development as a Restructuring, there is an agreement with the GOSL that the VSCO will be allowed to operate key priority but the government envisages uniform, autonomous and unhindered. The condition of non-interference with VSCO funds and autonomy will be homogenized and centralized governance architecture with incorporated in the Legal Agreement. Towards the sustainability of the project, the restructuring has direct control and oversight for all rural poverty programmes emphasized the empowerment of livelihood activities of the VOs and the capacity building! linkages of in the country. This has led to the rejection of the hitherto the producer groups to private organizations. Gemidiriya Foundation which was the implementation and Resp: Client I Stage: Prep I Due Date: February 20131 Status: On going governance structure of the project, in favour of a Project management unit directly under the control of the Ministry of Economic Development (MED). A new Bill called Divineguma Bill has just been passed by Parliament which intends to establish community based organizations and microfinance bank by building regional, district and national level network . This might change the status of community empowerment from being organic and community governed, to government controlled and administered. Already, the status of Village Organizations in the project is being proposed to be changed from Village Companies to Societies 22 2.Operating Environment Risks (not disclosed) 2.1 Country (description and rating are not disclosed) Rating: Moderate Risk Management 2.1.1. Macro-economic risks 2.1.1 Close monitoring of macro-economic policy and GOSL adherence to agreements Worsening fiscal deficit and inflationary pressures could affect project reached with IMF, continued dialogue with counterparts. For specific projects, managing on implementing the risk of inflation would involve providing for sufficient contingency funds. poico a l po oliderfoanc. W- Resp: client and Bank I Stage: Prep I Due Date : Ongoing I Status: policy of fiscal consolidation. 2.1.2 Business Climate Risks 2.1.2 Investment climate survey will provide the necessary evidence-base to take The business climate and international competitiveness not improving appropriate policy actions, for which the Bank will provide TA. sufficiently. Insufficient flexibility on exchange rates, lack of diversity - Resp: Bank I Stage: Prep I Due Date : December 20111 Status: in exports and stalled progress on signing the CEPA with India. 2.1.3 Politics and Governance 2.1.3 The Bank will offer Technical Assistance to carry out the necessary civil service Increased concentration of power; concerns about a reduction in the reforms, and support the development of stronger institutions using IDF grants independence of institutions, transparency and accountability. A need - Resp: client and Bank I Stage: Prep I Due Date : June 20121 Status: for stronger institutions. 2.1.4 Land Issues: 2.1.4 The Bank would engage in dialogue and offer Technical Assistance to help Unresolved land issues, including loss of land documents (especially in formulate clear strategies, objective selection criteria, and appropriate transparency and the North and the East, among displaced persons), secondary accountability mechanisms, as integral elements of project design occupation, and continued displacement from high-security zones - Resp: client and Bank I Stage: Prep I Due Date : Ongoing I Status: without compensation. 2.1.5 Country Level Fiduciary Risks (Financial Management) 2.1.5 Fiduciary capacity assessment at macro and sector-levels; FM capacity building Inadequate FM capacity; no mandated continuous structured skill activities in projects; training of Auditor-General's Department officials in Value-For- building programs for Accountants, no systematic mechanism to ensure Money audits and investigative audits. Strengthening of the Public Accounts Committee uniformly good FM practices; weak internal and external audit; cash- and the Committee on Public Enterprises flow issues; and weak asset management systems. - Resp: client and Bank I Stage: Prep I Due Date : Ongoing I Status: 2.1.6 Country Level Fiduciary Risks (Procurement) 2.1.6 The Bank will work with the Ministry of Finance and Planning to strengthen the Capacity constraints, weak compliance monitoring procurement monitoring and oversight functions. The Bank will continue to support training and continuous professional development programs to strengthen skills and capacities of staff in PFM and public procurement. - Resp: client and Bank I Stage: Prep I Due Date : Ongoing I Status: 2.1.7 Environmental Risks / Sustainability 2.1.7 Strong communication efforts to raise public awareness on improved governance, Risks that the push for doubling the GDP per capita could come at the environmental sustainability and such issues, and stakeholder consultations. expense of negative environmental impact. Resp: client and Bank I Stage: Prep I Due Date : Ongoing I Status: 23 2.1.8. Natural Disasters 2.1.8. Assessment of disaster seasonality and the vulnerability. Strengthening the Could affect project performance directly and indirectly. Possible capacity of the Disaster Management Centre and the other relevant agencies. allocation of funds from projects to disaster relief. - Resp: client and Bank I Stage: Prep I Due Date : Ongoing I Status: 2.2 Sector/multi-sector (description and rating are not disclosed) Rating: Moderate Description: (this description and rating are not disclosed) Risk Management Accountability and Oversight. A large number of line agencies exercise oversight on the delivery of Coordination mechanisms between the PMU and line agencies have been formalized different services and infrastructures at urban/metropolitan level, raising through the creation of an inter-agency A multi-agency Project Steering Committee potential issues of coordination and overlapping of responsibilities. In chaired by the Secretary of Defence and Urban Development was formally appointed particular, the overlapping responsibilities could become an obstacle for during project preparation to ensure inter-agency coordination and collaboration since the effective planning and infrastructure delivery at urban/metro level. early stages of project preparation and implementation. - Resp: client I Stage: Prep I Due Date : 11/31/20111 Status: Done Institutional Capacity. Risk Management: The MCUDP has developed a good reputation as an innovative The relatively low/non-competitive salary scale offered by government project, hence it has succeeded in attracting a large number of young professionals to fill agencies might affect the capacity of the implementing agencies technical positions (an average of 15-20 candidates apply for technical positions in the involved in the project to retain the most senior and qualified project PMU and project agencies). The project will build the capacity of these young staff over time professionals, while ensuring the presence of senior and experienced advice during project implementation by allocating adequate budget to mobilize specialized individual and firm consultancies. Resp: client I Stage: Prep I Due Date : ongoing| Status: NA 24 3. Implementing Agency Risks (including fiduciary) 3.1. Capacity Rating: Substantial Description: RiskManagement: Resources. During the past two years, the Bank has consistently monitored implementation of the project, There is a high staff turnover rate which has led to loss of conducted frequent ad-hoc supervision missions to stabilize the team, provide hand holding and experienced staff on the project. The situation made it capacity building to the team. More training opportunities and hand holding will be provided for the increasingly difficult to maintain institutional memory and to team during the course of project implementation. gain traction on the learning curve. This is due to uncertainties surrounding the continuity of the project as well as the high - Resp: Bank I Stage: Implementation I Due Date March 31, 20131 Status: Ongoing handedness of the project management. The combination of RiskManagement: these factors is likely to have an adverse impact on implementation effectve an cd cmpro t . To forestall the possibility of deliberate retrenchment of staff, the Bank has agreed with project to project'slkiod fcieng the dlopme tie provide a quarterly report of staff turnover beginning March 31, 2013. For critical core staff epoect' ialiehatd ther aeless than twveopyers ofjcivs positions, the project is requested to submit CVs of replacement staff to the Bank for review and especially given that there are less than two years of clearance. The project is also mandated to retain most of the current staff for the remaining implementation lfbeoetepaeothprjcisvr.duration of the project to enable the restructured project to achieve development objectives and be implemented smoothly. - Resp: client I Stage: Implementation I Due Date : N.A. I Status: Ongoing Risk Management: Design and Supervision consultants have been made available under the project to monitor and review implementation. Also a strong Bank team follows up project implementation on a regular basis Resp: Bankt I Stage: Implementation I Due Date : January31, 20131 Status: On Going 3.2. Governance Rating: High Description: Risk Management: The Project Management Unit was established to replace the Foundation and the Bank is closely Decision-making and Ownership: monitoring its implementation of the project along laid down procedures. Project has also been The Gemidiriya Foundation which was the governance requested to give the existing Assistant Project Directors more authorities and structure of the project in phase I was made dysfunctional. This responsibilities/delegation of powers in order for project management to be more effective. The has led to abuse of processes and HR functions. The absence of Governance and Accountability Action Plan (GAAP) of the project has been updated based on functional grievance handling mechanism has also discouraged envisaged risks and the team will ensure its implementation. project staff and communities to seek management's support for internal issues and has led to many representations to the Bank on the project implementation. In addition, there is lack - Resp: client I Stage: Implementation I Due Date January 15, 20131 Status: Ongoing of systematic internal and external communication which ought Risk Management: to provide functional information about the project as at when During implementation, the PMU and the Bank will continue to hold monthly progress review 25 due and in proper format The span of control of the present meetings involving all component head of divisions in order to ensure that they continue to give Project Director is also considered too much since it covers 3 timely delivery on their responsibilities and exchange information and experience among each other.. World Bank projects. This presents risk of inadequate attention to details on the project and significant delays in procedures - Resp: client I Stage: Implementation I Due Date: monthlyl Status: Ongoing and approval processes. The Bank will encourage the project implementation to follow a decentralized approach by which the various levels of management of the project are equipped/empowered to make decision related to their specific areas of expertise and responsibility. - Resp: client I Stage: Implementation I Due Date: NA| Status: Ongoing Risk Management The Bank will work with the project to evolve a strong grievance redress mechanism strategy. The guidelines will be developed and made functional. The development of a communication strategy will also be anchored on the project. As at April 2013, the Grievance Redress Mechanism (GRM) of the project has been prepared and the Bank has started work with the project on the development of a Communication strategy. Resp: client I Stage: Implementation I Due Date: January 15, 20131 Status: Ongoing 3.2 (a) Fraud & Corruption Rating: Moderate Description: (this description and rating are not disclosed) Risk Management: Regular supervision, annual audits, and periodic reviews by procurement and financial management Transparency and Control. specialists will insure continuity in the application of sound practices. The involvement of the The Ministry of Economic Development may have undue communities in all decisions on sub-projects will be maintained throughout the implementation period. influence on the direction of the project. There could be undue interference in some of the interconnectivity projects due to - Resp: Client and Bank Stage: Implementation I Due Date: Regularlyl Status: Ongoing complexity and location in difficult terrains. Fraud and Corruption. Risk Management: Overall, Sri Lanka's fraud and corruption risk is considered Provision is made under the project for continued capacity building during implementation, as needed. medium, based on Transparency International Corruption - Resp: client I Stage: Impl I Due Date : Regularly.I Status: Ongoing Perception Index. Sri Lanka is ranked 91st of this Index. 4. Project Risks 4.1. Design Rating: Moderate Description: Risk Management: Sufficient funds have been allocated in the restructuring process to allow the use of highly competent 26 Technical Complexity. Engineers during the design and the implementation/ monitoring of the sub projects. Technical Service The changes proposed in the restructuring will not lead to any Providers (TSP) will be engaged at the higher level including consideration for government agencies drastic change in the implementation modalities. The only in order to ensure link with government structure for sustainability of the projects. The Bank will technical complexities may arise from the interconnectivity sub ensure the involvement of the communities at all stages of the lifecycle of all infrastructure sub projects where some of the infrastructure are located in projects. difficult terrains or demand a higher level of expertise. Political - Resp: Client I Stage: Implementation I Due Date : NAI Status: On going interference may also alter the priorities of the communities. 4.2. Social & Environmental Rating: Low Description: Risk Management: Environmental and Social. The environment team of the project has commenced preparation of a Pest Management Plan As part of restructuring, the project will trigger following (PMP) in compliance with OP/BP 4.09 - Pest Management to fulfill one of the requirements of policies; OP/BP 4.04-Natural Habitats, OP/BP 4.09- Pest the restructuring process. It will also update the Environmental and Social Management Management, and OP/BP 4.12- Involuntary Resettlement. As Framework (ESMF) Both the PMP, the A(RAP) and updated ESMF has been prepared, cleared such, a pest management plan and abbreviated resettlement by the Bank and disclosed in- country on April 17 and also at Infoshop. plans (A-RAP) for subprojects will be prepared while the current ESMF and ISDS will be updated and disclosed. There could be delays in preparation and implementation due to Resp: client I Stage: Prep and Impl I Due Date: December 31, 2012 Status: On going capacity problems in the PMU. 27 4.3. Program & Donor Rating: Low Description: Interdependence with other projects. 4.4. Implementation & Sustainability Rating: Moderate Description: Implementation. Risk Management: The over centralization of the project may cause delay in the The project implementation arrangements have been designed to ensure delegation of authorities and approval processes. the project will be encouraged to give more authorities and responsibilities to its Assistant Project Directors. - Resp: Client I Stage: Prep and Impl I Due Date : NA I Status: Ongoing Sustainability. Risk Management: The functionality and independence of the Village Component B3 has been merged with Component C in order to give more emphasis to the Organizations is threatened by the change of its mode of strengthening of the producer groups. The later will be linked to technology and markets for legal entity. This is partly due to the increasing cost of effectiveness. This will indirectly ensure viability of the VOs and will serve as one of the exit maintaining the VOs as public companies and also partly strategies of the project. The VOs will also be mainstreamed into government structure in order to because of new orientation of government. receive services from its agencies on a sustainable basis. - Resp: client I Stage: Prep I Due Date: 12/30/20121 Status: Not yet Due Non-disc losable Information for Management Attention (Optional) Comments: 5. Project Team Proposed Rating Before Review 5.1. Preparation Risk Rating: M 5.2 Implementation Risk Rating: H 28