The World Bank Social Safety Nets Modernization Project (P128344) REPORT NO.: RES48408 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SOCIAL SAFETY NETS MODERNIZATION PROJECT APPROVED ON JULY 3, 2014 TO UKRAINE SOCIAL PROTECTION & JOBS EUROPE AND CENTRAL ASIA Regional Vice President: Anna M. Bjerde Country Director: Arup Banerji Regional Director: Fadia M. Saadah Practice Manager/Manager: Cem Mete Task Team Leader(s): Katerina Petrina The World Bank Social Safety Nets Modernization Project (P128344) ABBREVIATIONS AND ACRONYMS ACU Accounting Chamber of Ukraine AF Additional Financing AF2 Second Additional Financing for COVID-19 Response ATC Amalgamated Territorial Community CD Country Director DPC Data Processing Center of the Ministry of Social Policy of Ukraine FM Financial Management GMI Guaranteed Minimum Income GoU Government of Ukraine IBRD International Bank for Reconstruction and Development IDP Internally Displaced Person MIS Management Information System MoSP Ministry of Social Policy NSSU National Social Service of Ukraine PBC Performance-Based Condition PDI Project Development Indicator PDO Project Development Objective POM Project Operational Manual SSN Social Safety Net SSNMP Social Safety Nets Modernization Project USIF Ukrainian Social Investment Fund The World Bank Social Safety Nets Modernization Project (P128344) BASIC DATA Product Information Project ID Financing Instrument P128344 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 03-Jul-2014 31-Aug-2024 Organizations Borrower Responsible Agency Ukraine Ministry of Social Policy of Ukraine Project Development Objective (PDO) Original PDO The objective of the Project is to improve the performance of the Borrower's social assistance and social services system for low-income families. Current PDO Improve the performance of Ukraine’s social assistance and social services system for low-income households and provide income support to households affected by the economic impact of the COVID-19 pandemic OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-91960 11-Dec-2020 14-Dec-2020 14-Dec-2020 31-Aug-2024 300.00 225.00 75.00 IBRD-91070 30-Apr-2020 05-May-2020 20-May-2020 31-Aug-2024 150.00 85.38 64.63 IBRD-84040 03-Jul-2014 09-Jul-2014 02-Oct-2014 31-Aug-2024 300.00 194.65 105.35 The World Bank Social Safety Nets Modernization Project (P128344) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Social Safety Nets Modernization Project (P128344) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. ORIGINAL PROJECT APPROVAL AND PDO 1. The Social Safety Nets Modernization Project (SSNMP) is financed by an IBRD loan of US$300 million, which was approved by the Board of Directors on July 4, 2014, and became effective on October 2, 2014. The PDO is to improve the performance of Ukraine’s social assistance and social services system for low-income households and provide income support to households affected by the economic impact of the COVID-19 pandemic. Overall, implementation is Moderately Satisfactory, and the Project is on track to meet its PDO. 2. On April 30, 2020, the Board of Executive Directors approved an Additional Financing (AF) in the amount of US$150 million for the parent project. This additional loan was aimed to support the reforms of the Social Safety Net (SSN) and disburse based on the achievement of the Performance-Based Conditions (PBCs), which capture reform progress under Component 1. During the preparation of the AF, the outbreak of the COVID-19 pandemic started posing a large negative impact on the poor and vulnerable in Ukraine. The Government of Ukraine (GoU) developed its COVID- 19 Emergency Response Plan that included a social protection component and requested the World Bank support to co- finance it. 3. In response to the GoU request on December 11, 2020, the Board of Executive Directors approved a Second Additional Financing for COVID-19 Response (AF2) in the amount of US$300 million for the SSNMP. The AF2 is helping to finance the COVID-19 social protection emergency response and long-term structural improvements of the Social Safety Net by: (a) introducing emergency cash transfers to individuals and households who have lost their jobs or income sources because of the COVID-19 pandemic; (b) supporting poor households using the country’s existing Guaranteed Minimum Income (GMI) Program; and (c) strengthening social protection delivery systems and institutions to improve response to future shocks. 4. Project restructurings. The SSNMP has had three Level II restructurings. The first, approved in October 2015, revised the titles of Component 3, PBC 17, and Results Indicator 5 by replacing the reference to ‘four oblasts’ with ‘selected oblasts’. The second restructuring, in January 2020, introduced the following changes: (a) extending the loan closing date from October 1, 2020, to March 31, 2023, to synchronize the original loan’s closing date with the first AF’s closing date; (b) updating Project Development Indicators (PDIs) end target dates to reflect the extension of the closing date; (c) excluding the financing of civil works while increasing the financing of services, equipment, and furniture for family-based care and homes, as well as the training of social workers under Component 3; and (d) removing the Ukrainian Social Investment Fund (USIF) as an implementing agency from Component 3, given the exclusion of civil works. The third restructuring, approved in May 2021, specified the goods that could be purchased under Component 2 of the Project by including ‘vehicles and other equipment required to provide social services to ensure complementarity of the ongoing GoU program and the Project activities. 5. Progress toward achievement of the PDO and PDIs. The PDIs used to track progress toward the PDO are grouped around four results areas and are the following: • Results Area 1. Increase access of extreme poor to the GMI Program PDI 1: The share of individuals from the poorest decile receiving GMI increases from 10 percent in 2012 (baseline) to 17 percent in 2022 PDI 2: the GMI Program budget increases at least sevenfold in nominal terms. The World Bank Social Safety Nets Modernization Project (P128344) • Results Area 2. Improved administration of benefits and services PDI 3: An effective and efficient system to prevent, detect, deter, and monitor error, fraud, and corruption (EFC) in place. PDI 4: Management Information System (MIS) collects social assistance and service programs’ information nationwide, which measures improvements in the administration of benefits and services. • Results Area 3. Enhanced provision of family-based care to support families in need and vulnerable families PDI 5: Number of children de-institutionalized and moved to alternative forms of care in three selected oblasts increased by 40 percent, which measures enhanced provision of family-based care to support families in need and vulnerable families. • Results Area 4. Number of poor and vulnerable households and individuals affected by COVID-19 receiving cash support PDI 6: Number of families provided with cash benefits under the GMI Program that was expanded to protect the poor affected by the COVID-19 economic crisis, including the percentage of females. PDI 7: Number of individuals receiving unemployment benefits, including the percentage of females. PDI 8: Number of small entrepreneurs, operating without the creation of the legal entities, provided with temporary child benefits. 6. There is good progress toward the targets of all PDIs, but challenges to reaching them remain. More time and effort are needed to reach the end-of-project values for the PDIs, and the extension of the closing date, together with the approval of the AF and AF2, will allow the completion of activities that would lead to the PDIs’ achievement. These activities include MIS development, child deinstitutionalization, and activation of the GMI beneficiaries in the labor market. COMPONENT 1 7. Progress under Component 1 is significant. Over the past seven years, the Project directly co-financed the expansion of the GMI Program to increase the number of beneficiaries that allowed the Government to increase the share of individuals from the poorest decile who receive GMI benefits from 10 percent in 2012 (baseline) to 14.5 percent in 2017, thus showing progress in achieving the target of 17 percent by 2024. Further expansion of the GMI Program started in 2020. Over the period 2021–2023, with the increase in the GMI income eligibility threshold, the number of GMI Program beneficiary families is expected to increase to 1.7 million persons, expanding the program’s coverage from 2.5 percent in 2017 to about 5 percent of the population. 8. The Ministry of Social Policy (MoSP) achieved 20 out of 28 PBCs, which triggered the disbursement of US$469.25 million out of a total of US$750 to the state budget. The MoSP is currently exploring the potential for linking GMI Program beneficiaries with complementary social services. An integrated GMI Program can better establish complementary services to help people with specific needs, including disabilities and care needs. Such an approach is also complementary to any activation measures as they could help overcome barriers that would render activation measures ineffective or inaccessible. The GoU is planning to pilot integrated GMI to address the issue of social exclusion by linking program participants to a wide range of services, thus the achievement of another PBC, that will trigger disbursement of US$10 million, is expected in September 2021. COMPONENT 2 The World Bank Social Safety Nets Modernization Project (P128344) 9. Component 2 is progressing as planned. The first major achievement was the successful completion of the piloting of activation services to support labor market activation of workable GMI Program beneficiaries, promoting a move from dependency on benefits to self-sufficiency. The pilot was named ‘Hand of Help’ and has been operating since 2016 in Kharkiv, Poltava, and Lviv Oblasts, and since 2018 also in three amalgamated local communities. By mid- 2018, 3,300 GMI Program beneficiaries and internally displaced persons received activation services that helped them return to the labor market. With the financial support that was envisaged under the pilot, 230 participants managed to establish their own businesses. As a result of the pilot, around 30 percent of the workable GMI Program beneficiaries were activated. The pilot showed that more restrictive measures for workable beneficiaries are needed to make them interested in activation, including changes to the eligibility rules and benefit duration. In June 2020, legislation was adopted to extend the pilot nationally. The legislation also introduced several measures to encourage workable beneficiaries to participate in activation, including changes to the eligibility rules and benefit duration. 10. Another achievement was the introduction of the new models for social assistance and social services delivery to be supported by an integrated MIS ‘E-Social’. It includes the establishment of the National Social Serv ice of Ukraine (NSSU), the state executive body that will ensure implementation of the social protection policy at the regional and sub- regional levels during the final stage of the decentralization reform in Ukraine. In terms of operational design, the NSSU is a centralized vertical structure that will administer and provide all social benefits and some of the social services. The NSSU will also perform control and inspection of benefits and services, thus incorporating the social inspectorate function in its structure. The NSSU will have a central office, 25 oblast-level offices, and 126 rayon-level offices. It will be established in phases during 2020–2022 by overtaking the social protection responsibilities from the oblasts’ and rayons’ state administration. The NSSU will take over all the functions related to benefits administration, except the ‘client intake’ function that is shifted to the level of communities. The establishment of the NSSU unlocks the investments envisaged under the original SSNMP to finance critical inputs for strengthening the NSSU’s capacity by providing computer equipment, furniture, and training, thus increasing disbursements under Component 2. 11. In August 2020, the GoU approved the final number (1,469) of the territorial communities to operate in the new administrative-territorial structure of Ukraine, thus allowing the SSNMP to continue the provision of computers, furniture, and training to support the implementation of the new models for client intake and social services delivery. By June 2020, the original SSNMP helped create and equip 34 ‘transparent offices’ and social units in 274 territorial communities. The original SSNMP will continue providing technical support to the ATCs in stages to equip all of them by mid-2022. 12. The Project helped to develop the application software for the ‘Social Community’ Information System that integrated into a single information environment the client intake in the front offices in the territorial communities with back-office operations in the sub-regional (rayon) welfare offices, where a decision is made to provide benefits and services, and central database of beneficiaries in the MoSP. During 2020 the application software ‘Social Community’ was piloted in the volunteering ATCs. Since 2021 this application software became mandatory for the use of ATCs if they are to be able to provide benefits and services to their population. As of September 2021, 1427 territorial communities (99.7 percent of the communities located in the Government-controlled areas) administer benefits using the ‘Social Community’. 13. The original project includes a multifaceted activity to develop an integrated MIS ‘E-Social’ that will cover all social assistance and social care services provision. The MIS is based on new web technology and is aimed at transforming the modalities for citizen interface and improving accessibility of benefits and services to overcome the limitations of remoteness, accommodate disabilities, and reduce the transaction costs of applying for programs and receiving benefits and services. It also offers program administrators more efficient ways to automate processes and manage information. The development of the integrated MIS ‘E-Social’ is underway. The World Bank Social Safety Nets Modernization Project (P128344) COMPONENT 3 14. Progress has been made in the deinstitutionalization of childcare. Preparation for the transformation of 19 residential institutions for children and provision of family-based care to support orphans, children deprived of parental care, children with disabilities and vulnerable families in four selected oblasts, namely in the city of Kyiv, Kyiv, Chernihiv, and Ternopil oblasts, has been completed. However, the local authorities do not have firm plans to transform these institutions, except in Ternopil oblast, where local governments have approved transformation plans for six institutions. During the period January 2019 - October 2020, with support from the Project, the number of children in residential care institutions of four selected oblasts was reduced by 32 percent. During the same period, the overall number of children that moved from residential care (those that were on round-the-clock care 5 or 7 days per week) to home-based and alternative forms of care in four oblasts increased by 5.7 percent. The share of children provided day-time services and care in four oblasts increased by 12.6 percent. 15. Although a shift from institutional to family-based and alternative care and integration of children into communities and wider society is declared the Government’s priority, the transition faces a number of challenges. As for the whole of Ukraine, the results of the deinstitutionalization are modest. The first stage of the Deinstitutionalization Strategy, which is currently implemented in all regions of Ukraine, resulted in the closing down of 20 residential care institutions and transformation of 37 institutions into day-time care facilities and deinstitutionalization of 13 percent of children and moving them to family-based and alternative forms of care. 16. The Project will finance the extensive online training program to be implemented by December 2022. The training program will benefit over 4000 social workers, specialists of the NSSU, and representatives of the territorial communities to strengthen their capacity to provide family-centered community-based support, address different types of vulnerabilities, help vulnerable families and children to overcome challenging life circumstances and mitigate their negative impacts, as well as to plan, design and deliver social services, including early intervention and response to the needs of children. The Project proceeds will be also used to finance goods, services, equipment, furniture and vehicles for social services delivery centers and social adaptation and rehabilitation centers, as well as for family homes and other types of family-based care in Ternopil oblast based on results of the needs’ assessment. It was agreed with the MoSP to provide similar goods to other five oblasts if they manage to present meaningful needs assessment results. These activities will increase commitment under Component 3 by US$3 million. 17. Financial management (FM). Based on the latest FM supervision of the SSNMP, it was confirmed that the FM and disbursement arrangements are rated Satisfactory, and the FM risk remains Moderate. The Accounting Chamber of Ukraine (ACU) submitted an unqualified financial audit of the Project that covered years 2017-2018 of its implementation. In addition, in July 2020 the ACU completed a Project Performance audit that covered years 2018- 2019 of the Project implementation. The Financial Audit of the project for 2020 is completed and the World Bank team expects to get the 2020 financial audit of the Project in October 2021. Thus, the Project is in compliance with audit requirements. B. RATIONALE FOR PROJECT RESTRUCTURING 18. One of the key results areas of the Project is focused on improving the administration of benefits and services, including the provision of investments to strengthen institutions and improve information management. The information management services, namely development, implementation and technical support of application software and data processing services, are provided to the MoSP and local welfare offices by the State-owned Enterprise ‘Data Processing Center of the Ministry of Social Policy of Ukraine’, which is subordinated to the MoSP. The server and network hardware of the Data Processing Center (DPC) infrastructure is currently used to support the operation of 10 The World Bank Social Safety Nets Modernization Project (P128344) management information subsystems of the MoSP, including the Integrated Information System ’Social Community’, which was developed with the support of the Project. The DPC does not provide any services to private companies or organizations. 19. The DPC operates based on the Charter approved by the Order of the MoSP No. 328 dated June 14, 2021. All assets of the enterprise, including current and non-current assets, are owned by the state. According to the Charter, the DPC, which operates on a commercial basis, develops and implements its action program agreed with the MoSP, attracting and using logistical, financial, labor and other resources and mechanisms, which are not prohibited under the national law. Specifically, the DPC receives financing and material contributions from the MoSP and has the right to obtain bank loans, make capital investments to purchase fixed assets needed to enhance its performance and use other financial instruments. In terms of labor management procedures, the DPC establishes its internal organizational structure and determines the composition and number of staff. The staff members of the DPC are not granted civil servant status, whose salaries are paid from the state budget. Thus, instead of the fixed salary rates, the DPC utilizes a market-based wage level system offering competitive salaries. The DPC workers are employed under terms and conditions set out in their employment contracts (agreements), including conditions related to hours of work, wages, overtime, compensations, benefits, participation in trade unions, collective bargaining, applicable disciplinary procedures, grievance mechanism, etc., which adequately reflect their rights guaranteed by national labor and employment law. 20. The functions of the ‘authorized management body’ performed by the MoSP, include: (i) approval of the DPC Charter and amendments to it; (ii) supervision, monitoring and evaluation of the DPC performance, focused on compliance with the provisions of the Charter; (iii) appointment and dismissal of the DPC Director, subject to the terms and conditions of his/her employment agreement, and evaluation of his/her performance; (iv) approval of the annual and mid-term (3-5 years) financial and investment plans; (v) financial performance monitoring and (vi) ensuring verification of assets and audit of the financial statements of the DPC. 21. The current DPC infrastructure is unable to sustain the operation of the information systems of the MoSP and secure stable user access to them due to the limited productivity and insufficient fault tolerance of the data storage and data processing infrastructure and network equipment. At the same time, the number of information systems’ users, as well as the volume of the data to be processed, continue to increase exponentially. The Project was designed to use its proceeds to purchase server and network equipment to build capacities of the data storage, processing, and transmission infrastructure. The Loan Agreements currently envisage the provision of equipment only to the MoSP and selected governmental bodies of all levels responsible for social protection of the population and meant to cover the DPC as well. However, the DPC is neither a central, nor a local government body. Thus, the proposed amendment would legitimize the procurement of server and network equipment for the DPC. 22. Inclusion of the DPC as an eligible beneficiary of the loan proceeds will not change the implementation and fiduciary arrangements envisaged under the Project. Procurement and financial management arrangements will remain unchanged. The revision of the Schedule 1 “Project Description” of the Loan Agreements № 8404-UA, № 9107-UA, and № 9196-UA to specify the DPC that will be provided with server and network equipment needed to improve information processing and management will be duly reflected in the Project Operational Manual. The World Bank Social Safety Nets Modernization Project (P128344) II. DESCRIPTION OF PROPOSED CHANGES Proposed Level 2 restructuring includes revision of the Schedule 1 “Project Description” of the Loan Agreements № 8404- UA, № 9107-UA, and № 9196-UA to specify the entity that will be provided with server and network equipment needed to improve information processing and management. The Section I of the Appendix to the Loan Agreements will be amended by including the definition for the Data Processing Center of the MoSP. III. SUMMARY OF CHANGES Changed Not Changed Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ The World Bank Social Safety Nets Modernization Project (P128344) Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) . Proposed Level 2 restructuring includes revision of the Schedule 1 “Project Description” of the Loan Agreements № 8404- UA, № 9107-UA, and № 9196-UA to specify the entity that will be provided with server and network equipment needed to improve information processing and management. Specifically, the changes will include: (i) amendment to paragraph 2.1(c) of Schedule 1 by including “Data Processing Center of the MOSP” and (ii) amendment to Section I of the Appendix to the Loan Agreements by including the following definition in alphabetical order: ““Data Processing Center of the MOSP” means the state-owned enterprise subordinated to the MOSP, which is the legal successor of the Data Processing Center established by the Order of the Ministry of Social Security of the Ukrainian Soviet Socialist Republic (USSR) No. 97 dated July 30, 1982, pursuant to the decision of the Council of Ministers of the USSR No. 8818/4 dated July 13, 1982, and registered in the Unified State Register of Enterprises and Organizations of Ukraine under number (code) 03562649, that, in accordance with its Charter, develops, implements and supports application software and provides data processing services solely to the MOSP and welfare and labor bodies”.