Document of The World Bank Report No: 62974-MG RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF RURAL DEVELOPMENT SUPPORT PROJECT JUNE 22, 2001 TO THE REPUBLIC OF MADAGASCAR JUNE 30, 2011 Agriculture and Rural Development Unit Country Department AFCS4 Africa Region Abbreviations and Acronyms BP Bank Procedure IDA International Development Association OP Operational Policy PIU Project Implementation Unit PSA Programme Sectoriel Agricole PSDR Projet de Soutien au Développement Rural XDR Standard Drawing Rights Regional Vice President: Obiageli Katryn Ezekwesili Country Director: Haleh Bridi Sector Manager / Director: Karen Mcconnell Brooks Task Team Leader: Ziva Razafintsalama ii MADAGASCAR RURAL DEVELOPMENT SUPPORT PROJECT P051922 CONTENTS A. SUMMARY................................................................................................................ 1 B. PROJECT STATUS.................................................................................................. 2 C. PROPOSED CHANGES .......................................................................................... 3 Reallocations .............................................................................................................. 3 Closing date................................................................................................................ 3 ANNEX 1 REALLOCATION OF PROCEEDS ............................................................ 4 ANNEX 2 EXTENSION OF CLOSING DATE ............................................................. 5 iii MADAGASCAR RURAL DEVELOPMENT SUPPORT PROJECT RESTRUCTURING PAPER SUMMARY 1. In September 2001, the World Bank Board of Executive Directors approved an IDA credit in the amount of US$ 89 million (Cr. 3524 MAG) to finance the Rural Development Support Project (Projet de Soutien au Développement Rural - PSDR). The original closing date of the project was June 30, 2007, which since then has been extended several times to its current closing date of June 30, 2011. Because the Project was performing well, the Government of Madagascar requested supplementary financing to allow continuation of the project for three years. An additional credit (Cr. 4525 MG) in the amount of US$ 30 million was approved by the Board in October 2008. The financing agreement for the additional credit was signed in December 2008, but before effectiveness could be declared, the political crisis broke out in Madagascar, and OP/BP 7.30 was imposed, delaying further action. 2. In May 2010, the World Bank Managing Director granted exceptional authorization under OP/BP 7.30 to allow selected operations in Madagascar to resume on humanitarian and/or food security grounds. One of these operations was PSDR; the memorandum issued by the Managing Director authorized the additional credit to be declared effective. Effectiveness of the additional credit was duly declared on June 7, 2010. Shortly thereafter, PSDR was restructured to refine the results framework, reallocate the credit proceeds, modify procurement procedures, and extend the closing date. The Project is currently under implementation and is performing satisfactorily. 3. The May 2010 memorandum signed by the Managing Director cleared the way for the additional credit to be declared effective, but due to an administrative oversight, it did not also grant authorization for disbursements from the original credit to resume. As a result, even though PSDR was able to resume using IDA funds from the additional credit, approximately US$ 1.6 million in undisbursed IDA funds from the original credit remained inaccessible. These funds have been idle for more than two years. 4. The Managing Director has now authorized the resumption of all lending operations in Madagascar for which disbursements have remained frozen, provided the operations are contributing effectively to the Bank’s overall country assistance strategy and are subject to close fiduciary oversight by the Bank. This means that the undisbursed IDA funds remaining in the PSDR original credit can now be accessed. However with the original credit scheduled to close on June 30, 2011, an extension of the closing date is needed to avoid loss of the unspent IDA funds. The restructuring will extend the closing date of the original credit to coincide with the closing date of the additional credit, allowing both credits to finance implementation, as planned. 5. The proposed changes will not affect the Project Development Objective or trigger new safeguards policies. However, they will result in an extension of the closing date of more than two years beyond the original closing date, and accordingly, the package is being processed as a Level 2 restructuring, requiring the Regional Vice President’s approval. 1 PROJECT STATUS 6. Declared effective on September 20, 2001, PSDR has long been a centerpiece of the government of Madagascar’s agricultural development strategy. The Project finances demand-driven income-generating sub-projects throughout the national territory that contribute directly to the livelihoods and increase the food security of thousands of rural households representing hundreds of thousands of the very poor. In addition, the Project provides support to the national agricultural research system and strengthens local capacity to design and implement agricultural policies and programs. 7. The design used during the original phase of the Project has been maintained during the period being financed by the additional credit. PSDR includes four components. Component A (Productive Investments) is financing 2,200 sub-projects (each sub-project involves 15 direct beneficiaries on average, so 33,000 direct beneficiaries in all) and 3,800 capacity building sub-projects (57,000 direct beneficiaries in all). The vast majority of these sub-projects increase food production and increase revenues for poor rural households. Component B (Support Services) is supporting the preparation of a national agricultural research strategy and strengthening the national agricultural research system. These activities will contribute to long-term agricultural productivity growth throughout the country. Component C (Capacity Building and Policy Development) is supporting the implementation of the government’s Programme Sectoriel Agricole (PSA) and financing capacity strengthening activities for 40 Agricultural Services Centers, which play a key role in linking producer organizations with agricultural service providers. Component D (Project Management) supports the Project Implementation Unit (PIU). 8. Implementation of Project-supported activities was severely and negatively affected by the political crisis that broke out in Madagascar in early 2009. Following the change in government and the subsequent triggering of OP/BP 7.30 in March 2009, implementation of Project-supported activities slowed as the flow of IDA funds was disrupted. In a sign of strong local support for the Project, the de facto government through the Ministry of Agriculture continued to provide financing during the crisis period, ensuring the preservation of the PIU, including a national office and eight regional offices. The fact that the financially strained de facto government was willing to support the cost of the PIU demonstrates the high regard in which the Project is held across the political spectrum. 9. In May 2010 when World Bank senior management decided to re-engage selectively in Madagascar, PSDR was one of four projects granted authorization to resume activities. Following the declaration of effectiveness on June 6, 2010, the Project management team moved swiftly to clear the backlog of arrears that had accumulated during the freeze in disbursements, fill numerous staff vacancies, refurbish offices, and repair the vehicle fleet. An ambitious two-year work program was reviewed and cleared by the Bank, and implementation activities are currently underway. The most recent supervision mission was carried out in February 2011, at which time the performance of the Project was rated Moderately Satisfactory. 2 PROPOSED CHANGES 10. In May 2011, the Managing Director authorized the resumption of all active lending operations in Madagascar. This decision paves the way for the resumption of disbursements from the original credit (Cr. 3524 MAG). Since the credit is scheduled to close on June 30, 2011, restructuring is needed to extend the closing date and prevent loss of the remaining funds. In addition, a minor reallocation of credit proceeds will be undertaken. Reallocations 11. Project management has requested a reallocation of credit proceeds to ensure that adequate funds are available in Component D to cover the additional project management costs (including purchases of equipment and vehicles) that were incurred to maintain core functions of the Project Implementation Unit (PIU) during the period when disbursements were suspended under OP/BP 7.30. The proposed reallocation appears below in Table 1. Table 1. Proposed reallocation of credit proceeds (XDR) Amount of the Credit Allocated % of Expenditures Category of Expenditure (expressed in XDR equivalents) to be Financed (1) Grants – 1A 28,802,030.00 100% (1) Grants – 1B 25,916,610.00 100% Foreign 100% (2) Civil Works 27,210.00 Local 85% (3) Equipment, vehicles and Foreign 100% 1,869,440.00 materials Local 85% (4) Consultants’ services, Foreign 100% 4,038,465.00 training, and audit Local 85% (5) Operating Costs 7,636,110.00 90% (6) PPF 74,500.00 Total 68,364,365.00 Closing date 12. Following three previous extensions, the original credit (Cr. 3524 MAG) is scheduled to close on June 30, 2011. The additional credit (Cr. 4525 MG) is scheduled to close on December 30, 2012, which is the effective closing date for the Project. Under the proposed restructuring, the closing date for the original credit will be extended and made to coincide with the closing date for the additional credit. The Borrower has put in place an action plan to complete implementation of all project-supported activities. The action plan was reviewed by the Bank and found to be acceptable. 3 ANNEX 1 Reallocation of Proceeds MADAGASCAR - RURAL DEVELOPMENT SUPPORT PROJECT (P051922) [CR. 3524 MAG] Restructuring Paper 1. Proceeds for Madagascar, Rural Development Support Project, [Cr. 3524 MAG], (P051922) will be reallocated as follows: Allocation (XDR) % of Financing Category of Expenditure Current Revised Current Revised (1) Grants – 1A 28,875,000.00 28,208,030.00 42% 41% (1) Grants – 1B 25,524,000.00 25,916,610.00 37% 38% (2) Civil Works 49,865.00 27,210.00 < 1% <1% (3) Equipment, vehicles and 1,798,000.00 1,869,440.00 3% 3% materials (4) Consultants’ services, training, 4,212,000.00 4,038,465.00 6% 6% and audit (5) Operating Costs 7,831,000.00 7,636,110.00 11% 11% (6) PPF 74,500.00 74,497.62 < 1% <1% Total 68,364,365.00 68,364,365.00 100% 100% 2. The proposed minor reallocation of credit proceeds is necessary to cover the additional project management costs that were occurred in order to maintain core functions of the Project Implementation Unit (PIU) during the period when disbursements were suspended under OP/BP 7.30. 4 ANNEX 2 Extension of Closing Date MADAGASCAR - RURAL DEVELOPMENT SUPPORT PROJECT (P051922) [CR. 3524 MAG] Restructuring Paper 1. The Project closing date for the Madagascar Rural Development Support Project (P051922) [Cr. 3524 MAG] will be extended from June 30, 2011 until December 31, 2012. 2. The proposed extension is necessary to avoid the loss of IDA funds that have remained inaccessible under OP/BP 7.30. The extension will also allow the closing date for the original credit to be aligned with the closing date for the additional financing. 3. The Borrower has put in place an action plan to complete implementation of all project-supported activities; the action plan was reviewed by the Bank and found to be acceptable. 4. This will be the fourth extension of the closing date, for a cumulative period of 66 months. The original credit was extended on three occasions, twice to allow timely completion of Project-supported activities, and a third time to align the closing date for the original credit with the closing date for the additional credit. This extension will extend the closing date for the original credit beyond three years from the original closing date, but it is justified because the remaining IDA funds have remained inaccessible for more than two years due to external factors beyond the control of the Project, i.e., the disbursement freeze in effect under OP/BP 7.30. 5