FOR OFFICIAL USE ONLY Report No: PAD4501 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$7.5 MILLION TO THE REPUBLIC OF PANAMA FOR A SUPPORT TO PANAMA PPP PROGRAM DEVELOPMENT FOR RECOVERY PROJECT September 8, 2022 Transport Global Practice Latin America And Caribbean Region 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. CURRENCY EQUIVALENTS (Exchange Rate Effective August 29, 2022) Panamanian Currency Unit = Balboa (PAB) PAB$1 = US$1 US$1 = PAB$1 FISCAL YEAR January 1 - December 31 Regional Vice President: Carlos Felipe Jaramillo Country Director: Michel Kerf Regional Director: Stephanie Gil Practice Manager: Maria Marcela Silva Task Team Leader(s): Abel Lopez Dodero, Eric R. Lancelot ABBREVIATIONS AND ACRONYMS CABEI Central American Bank for Economic Integration CAF Development Bank of Latin America (Corporacion Andina de Fomento) CE Citizen Engagement CGR Comptroller General of the Republic of Panama (Contraloría General de la República de Panamá) CO2 Carbon Dioxide COST Construction Sector Transparency Initiative CPE Contracting Public Entities CPF Country Partnership Framework CREST Climate Resilience & Environmental Sustainability Technical Advisory COVID-19 Coronavirus Disease 2019 E&S Environmental and Social ESF Environmental and Social Framework ESG Environmental, Social, and Governance ESCP Environmental and Social Commitment Plan ESMS Environmental and Social Management System FM Financial Management FMA Financial Management Assessment GDP Gross Domestic Product GHG Greenhouse Gas GIF Global Infrastructure Facility GoP Government of Panama GRID Green, Resilient and Inclusive Development GRM Grievance Redress Mechanism GRS Grievance Redress Service HCI Human Capital Index IDB Inter-American Development Bank IFC International Finance Corporation IFR Interim Unaudited Financial Reports IMF International Monetary Fund IPF Investment Project Financing ISTMO Integration and Technological Solutions of the Operational Management Model (Integración y Soluciones Tecnológicas del Modelode Gestión Operativa) IT Information Technology LAC Latin America and the Caribbean MDB Multilateral Development Bank M&E Monitoring and Evaluation MEF Ministry of Economy and Finance (Ministerio de Economía y Finanzas) MOP Ministry of Public Works (Ministerio de Obras Públicas) MTR Mid-term review NDC Nationally Determined Contribution OECD Organization for Economic Co-operation and Development PBC Performance-Based Contract PCO Project Coordination Office PDO Project Development Objective PIU Project Implementation Unit PLR Performance and Learning Review POM Project Operational Manual PPIAF Public-Private Infrastructure Advisory Facility PPP Public-Private Partnership PPSD Project Procurement Strategy for Development RF Result framework SEP Stakeholder Engagement Plan SNAPP National Secretariat of PPPs (Secretaria Nacional de Asociaciones Público Privadas) ToR Terms of Reference WB World Bank WBG World Bank Group The World Bank Support to Panama PPP Program Development for Recovery (P174535) TABLE OF CONTENTS DATASHEET ........................................................................................................................... 2 I. STRATEGIC CONTEXT ...................................................................................................... 6 A. Country Context................................................................................................................................ 6 B. Sectoral and Institutional Context .................................................................................................... 8 C. Relevance to Higher Level Objectives............................................................................................. 14 II. PROJECT DESCRIPTION.................................................................................................. 15 A. Project Development Objective ..................................................................................................... 15 B. Project Components ....................................................................................................................... 15 C. Project Beneficiaries ....................................................................................................................... 18 D. Results Chain .................................................................................................................................. 19 E. Rationale for Bank Involvement and Role of Partners ................................................................... 19 F. Lessons Learned and Reflected in the Project Design .................................................................... 20 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 21 A. Institutional and Implementation Arrangements .......................................................................... 21 B. Results Monitoring and Evaluation Arrangements......................................................................... 21 C. Sustainability................................................................................................................................... 22 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 23 A. Technical, Economic and Financial Analysis (if applicable) ............................................................ 23 B. Fiduciary.......................................................................................................................................... 24 C. Legal Operational Policies ............................................................................................................... 25 D. Environmental and Social ............................................................................................................... 26 V. GRIEVANCE REDRESS SERVICES ..................................................................................... 27 VI. KEY RISKS ..................................................................................................................... 28 VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 29 ANNEX 1: Implementation Arrangements and Support Plan .......................................... 37 ANNEX 2: Financial Management Assessment (FMA) ..................................................... 42 The World Bank Support to Panama PPP Program Development for Recovery (P174535) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Panama Support to Panama PPP Program Development for Recovery Project Project ID Financing Instrument Environmental and Social Risk Classification Investment Project P174535 Moderate Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Performance-Based Conditions (PBCs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) [ ] Hands-on Enhanced Implementation Support (HEIS) Expected Approval Date Expected Closing Date 29-Sep-2022 31-Dec-2026 Bank/IFC Collaboration No Proposed Development Objective(s) The objective of the Project is to strengthen institutional capacity for mobilizing private capital to finance and manage infrastructures and services in the Republic of Panama. Page 2 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) Components Component Name Cost (US$, millions) Strengthening of PPP planning and institutional capacities for infrastructure 6.80 developments Project Management Support 0.70 Organizations Borrower: Republic of Panama Implementing Agency: Ministry of Public Works PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 7.50 Total Financing 7.50 of which IBRD/IDA 7.50 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 7.50 Expected Disbursements (in US$, Millions) WB Fiscal Year 2023 2024 2025 2026 2027 Annual 0.75 1.88 2.25 1.88 0.75 Cumulative 0.75 2.63 4.88 6.75 7.50 INSTITUTIONAL DATA Page 3 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) Practice Area (Lead) Contributing Practice Areas Transport Infrastructure, PPP's & Guarantees Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ Moderate 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Low 4. Technical Design of Project or Program ⚫ Low 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Moderate 7. Environment and Social ⚫ Moderate 8. Stakeholders ⚫ Moderate 9. Other 10. Overall ⚫ Moderate COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Page 4 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) Environmental and Social Standards Relevance Given its Context at the Time of Appraisal E & S Standards Relevance Assessment and Management of Environmental and Social Risks and Impacts Relevant Stakeholder Engagement and Information Disclosure Relevant Labor and Working Conditions Relevant Resource Efficiency and Pollution Prevention and Management Relevant Community Health and Safety Relevant Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Relevant Biodiversity Conservation and Sustainable Management of Living Natural Relevant Resources Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Relevant Local Communities Cultural Heritage Relevant Financial Intermediaries Not Currently Relevant NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review Summary (ESRS). Legal Covenants Conditions Type Financing source Description Effectiveness IBRD/IDA Effectiveness: Section 4.01 of the Loan Agreement: The Additional Condition of Effectiveness consists of the following, namely, that that the Operational Manual, in form and substance satisfactory to the Bank, has been adopted by the MOP. Page 5 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) I. STRATEGIC CONTEXT A. Country Context 1. Panama’s exceptional economic growth over the past decades was not accompanied by similar progress on social and institutional dimensions. Panama is one of the few countries in the Latin America and the Caribbean (LAC) region that has made progress in converging to the income per capita of more developed countries over the past two decades.1 However, the benefits of such growth have been uneven: the middle class expanded from 50.8 percent of the population in 2015 to 56.9 percent in 2019, but rural poverty remains six times higher than in urban areas. While the overall poverty headcount (US$5.5/day, purchasing power parity 2011) stood at 12.1 percent in 2019, rural poverty was 28.2 percent, and poverty among Indigenous Peoples exceeded 44 percent. Epitomizing these uneven development outcomes, Panama’s Human Capital Index2 of 0.50 is lower than those of middle-income countries such as Colombia (0.60), Peru (0.61), and Ecuador (0.59), with education and health outcomes lagging high- and middle-income countries significantly. From a gender perspective, women, especially in rural areas, are more likely to fall into poverty. 2. The capacity of most Panamanian institutions is also below that of countries with similar levels of income.3 For instance, compared to its structural peers,4 Panama performs in the bottom 25th percentile of all political institutions’ sub-indices (e.g., fundamental rights and power by social group) and of all public sector institutions (i.e., regulatory enforcement, regulatory governance, regulatory quality, and government effectiveness). The one exception is efficiency of government spending, which ranks in the 25-50th percentile. The strength of other institutions, such as labor and legal institutions, is more uneven and overall, many of those are below the 50th percentile. Moreover, women in Panama still face economic and legal inequality. Panamanian women currently earn 73 percent of what men earn, for doing the same job, despite having an average of two more years of study than men.5 Regarding laws affecting women’s salary, Panama does not mandate equal remuneration for work of equal value. When starting and running a business, the law does not prohibit discrimination in access to credit based on sex or gender; however, there are still opportunities to address constraints on women starting and running businesses.6 3. Panama was hit particularly hard by the Coronavirus Disease 2019 (COVID-19) pandemic, which aggravated the country’s development challenges. The country’s geographic location and its hub-based economy connecting North and South America and the Pacific and Atlantic basins made the country especially vulnerable to COVID-19 transmission. As a result of the pandemic, poverty increased 2.7 percentage points in 2020, bringing the overall poverty rate to 14.8 percent, despite strong poverty-mitigation efforts.7 COVID-19 impacts on human capital and poverty have also intensified long-standing inequities and reversed gains achieved over the past decades, particularly for vulnerable groups 1 From 11 percent of the United States’ Gross Domestic Product (GDP) per capita in 2000 to 24 percent in 2019. 2 The index measures the amount of human capital that a child born today can expect to attain by age 18, given the risks of poor health and poor education that prevail in the country where he/she lives. It is designed to highlight how improvements in current health and education outcomes shape the productivity of the next generation of workers, assuming children born today experience over the next 18 years the educational opportunities and health risks that children in this age range currently face. 3 Panama Quality of Governance and Institutions, background paper prepared by ELCG2 for the Panama Pandemic Response and Growth Recovery Development Policy Operation 2. P175930. World Bank Group (2020). 4 Costa Rica, Bulgaria, Croatia, Uruguay, and Dominican Republic (taken from the 2015 Systematic Country Diagnostic, SCD, Report No. 93425-PA). 5 https://www.laestrella.com.pa/cafe-estrella/cultura/211219/violencia-laboral 6 World Bank Panama Gender Scorecard FY22 and Women, Business, and the Law 2022. 7 Poverty is defined using the US$5.5 per capita per day poverty line at 2011 purchasing power parity prices. Source: World Bank Macro Poverty Outlook estimates. Page 6 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) such as women, Afro descendants and Indigenous Peoples. Panama’s unemployment rate reached a historic 18.5 percent in 2020. Sectors most affected by COVID-19 include tourism, construction, logistics, and commerce, which jointly employ close to 60 percent of all formal workers, indirectly generate about 70 percent of informal jobs, and indirectly employ 50 percent of women, 70 percent of Indigenous Peoples, and 56 percent of Afro descendants.8 Retail and services – predominantly represented by women – were also among the most affected sectors, accounting for 25 and 19 percent of the total employment losses in 2020. Labor markets have shown signs of recovery in 2021 (the unemployment rate reached 11.3 percent), but many vulnerable populations continued to be out of the labor force or perceived lower income levels than before the pandemic (High Frequency Phone Surveys, 2021).9 Moreover, Panama's recent development challenges have been further exacerbated by the impacts of the war in Ukraine on the global economy.10 4. The contraction of the economy generated by the COVID-19 pandemic has contributed to a fiscal deterioration compounding the challenges for a fast recovery. Panama’s GDP contracted by a staggering 17.9 percent in 2020, one the highest declines in the LAC region.11 It then rebounded with a growth rate of 15.3 percent in 2021. The fiscal deficit grew from 2.9 percent of GDP in 2019 to 10.2 percent of GDP in 2020 due to the COVID-19 pandemic, before reducing to 6.7 percent of GDP in 2021. The debt-to-GDP ratio increased from 46.4 percent of GDP (2019) to 69.8 (2020) and then declined to 63.7 percent of GDP in 2021. Nonetheless, the fiscal deficit is still above the long-term limit (1.5 percent of GDP) set by the Fiscal and Social Responsibility Law. Therefore, Panama will need to proceed with fiscal consolidation for the next years, which together with the increasing expenditures will likely reduce investment in public infrastructure, one of the key engines of growth in the past. Accelerating the mobilization of private capital to finance infrastructure development is seen by the GoP as a way to mitigate the effects of the fiscal constraints and improve the effectiveness of public infrastructure services delivery. 5. Panama’s economy is exposed to natural hazards that exacerbate its development challenges. Panama ranks 14th among countries most exposed to multiple impacts from climate change based on land area.12 Fifteen percent of its total area and 12.5 percent of its total population are vulnerable to two or more hazards. Panama’s geographical location along the tropical belt of the Western Hemisphere exposes it to the increasing frequency and intensity of extreme weather- and climate-related events, including El Niño–Southern Oscillation (both El Niño/La Niña phase) episodes, which are affecting, with increasing frequency and intensity, the Caribbean and the Central American regions. Panama’s road sector was particularly affected by the recent hurricanes Eta and Iota in November 2020, where traffic on the main highway network was cut off in 68 different critical points due to landslides.13 8 Labor Market Survey (Encuesta de Mercado Laboral), 2019 9 People living above US$ 5.5/day but under US$13/day. 10 In July 2022, Panama experienced one of its worst social crises with a nationwide strike in response to the rising cost of living and gas prices, and concerns about public expenditure inefficiencies and corruption. During the crisis, protesters blocked several roads throughout the country, including along the Pan American Highway in Chiriqui and Veraguas provinces, which is the country’s main route f or trade and the transportation of goods, connecting Panama to Costa Rica. These disruptions affected the mobility of the population, including airport access, and led to shortages and intermittent access to gasoline, diesel, and certain foods and medicine, particularly outside of Panama City. There were also some reports of violence and/or damage. A Single Dialogue Roundtable was set up and ongoing negotiations between government representatives and union leaders have helped reduce the number and intensity of the demonstrations by regulating the prices of 72 food items and reducing the cost of fuel. 11 https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=PA 12 Table 1.1 in Dilley et al (2005) Natural Disaster Hotspots: A Global Risk Analysis. Disaster Risk Management Series. No. 5 13https://www.laestrella.com.pa/economia/201111/mop-identifica-68-puntos-criticos-vias-acceso-caminos-produccion-danados- inclemencias-eta Page 7 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) B. Sectoral and Institutional Context 6. Infrastructure services play a critical role in the economy, and transport has received the largest share of infrastructure investment in the past.14 Taking advantage of its exceptional geographic location, Panama’s growth model has substantially relied on the development of core transport infrastructure services. Around 40 percent of GDP is tied to the Panama Canal, through which US$270 billion worth of cargo transits each year. Panama City’s airport has been successfully developed as an air hub for the Americas over the past years (16.5 million passengers in 2019, ninth largest airport in LAC) and is expected to double its capacity with the completion of a second terminal. Mirroring the importance of the sector for the economy, transport has had the largest share of infrastructure investment from 2009 to 2015 (Figure 1), primarily funded by public resources. It has also been a sector able to attract private financing, with close to US$2 billion between 1994 and 2018, and over a quarter of total infrastructure investment between 2008 and 2015 coming from private financing (Figure 2). Figure 1: Total Infrastructure Investment by Sector in Panama (as share of the country’s GDP) Source: World Bank based on the Infralatam database (Initiative to measure infrastructure investments in Latin American countries, http://infralatam.info/en/initiative/). Figure 2: Public and private investment in infrastructure as a share of GDP by LAC country, average (2008-2015) Source: Serebrisky T. et.al (2018). Lifting the veil of Infrastructure Investment Data in Latin America and the Caribbean . Inter- American Development Bank (IDB). Technical Note NºIDB-TN-1366. 14Recent infrastructure investments included bridges, metro, urban regeneration, energy and water such as the expansion of the Panama Canal, the Tocumen International Airport and Panama City’s first Metro line. Page 8 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) 7. However, while Panama’s core infrastructure around the canal, the capital city and some other main cities are in relatively good condition, the overall quality of infrastructure services presents opportunities for improvement. For instance, while road quality in the country has been rated as good, access and connectivity remain relatively poor: the country ranked 83rd overall for road connectivity in 2019. 15 Furthermore, according to the 2016 World Bank report on Rural Accessibility Index (RAI), only 23 percent of the rural population has access to primary and secondary roads, the second-worst rate in LAC (see Figure 3).16 Terrestrial access to rural areas and indigenous territories is cut off in many places for long periods of time during the rainy season, limiting these communities’ capacity to access schools, health centers, and markets.17 Figure 3: Rural Accessibility Index for Select Countries (Proportion of the rural population who live within 2 km of an all-season road – by road category) Source: Mikou, M. Et. Al. 2019. Assessing Rural Accessibility and Rural Roads Investment Needs Using Open Source Data. World Bank. World Bank Policy Research Working Paper; No. 8746. 8. Infrastructure services can contribute to closing gender gaps in Panama. In the past, infrastructure projects typically did not take a systematic approach to gender equality. Recently, more projects and programs are incorporating results chains that make a strong connection between gender analysis, actions and monitoring. In turn, they enable the design of interventions aiming at addressing the differentiated impacts of transport and infrastructure projects on women as users and potential providers. Interventions are also moving away from risk mitigation to fostering more pro- active actions focusing, for example, on providing women with equal access to infrastructure services, equipping women with skills at different levels; developing experience and tools to participate in decision-making processes and more broadly governance; and taking steps towards equal participation in the infrastructure sectors with equal pay in a non- discriminatory environment.18 The private sector has a role to play in the implementation and monitoring of projects that address women’s priorities in a more sustainable way under specific institutionalized standards that can, for example, improve women’s economic inclusion and mobility. 9. Employment is segregated in the infrastructure sectors and addressing this gap can contribute to gender equality and the development of more gender responsive projects. According to data from the International Labor Organization, eight percent of the people employed in the transport and communications sector are women in Panama. 15 2nd highest overall in LAC according to the 2019 World Economic Forum’s (WEF) Global Competitiveness Report (51 st overall) 16 https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf 17 https://openknowledge.worldbank.org/bitstream/handle/10986/34088/Strengthening-Infrastructure-Governance-for-Investment-and- Service-Delivery-in-Panama.pdf?sequence=4 18 IFC/World Bank. (2019). Gender Equality, Infrastructure and PPPs: https://www.ifc.org/wps/wcm/connect/f330a3ea-7473-435d-84f8- 4b55022731ee/Gender-and-PPPs-Primer.pdf?MOD=AJPERES&CVID=nAzAF0Q Page 9 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) Women face several barriers to participate in the transport sector in terms of recruitment (e.g., gender biased selection processes and policies), retention (e.g., absence of gender sensitive benefits, sexual harassment in the workplace) and promotion (e.g., few opportunities for training and mentorship). Addressing those gaps is relevant not only in terms of gender equality and wage differentials by bringing women into higher level jobs, but also for business performance. Bringing diversity to the sector through the introduction of relevant good practices can improve the quality of decision making by considering the differentiated priorities of women and men into infrastructure programming.19 It can also boost women’s participation in the sector. For example, recent evidence shows a correlation between the proportion of female managers in the transport sector and the total female participation in the transport workforce.20 Women often decide not to enter infrastructure-related occupations due to structural21, economic, and legal constraints. This can negatively affect the enabling environment for women’s economic empowerment and thus a gender-inclusive recovery. 10. Transport infrastructure and services are also key to Panama’s ambitions for the Climate Change agenda. In its updated Nationally Determined Contributions (NDCs), Panama has proposed reducing its greenhouse gas (GHG) emissions by 11.5 percent by 2030 and 24 percent by 2050 in comparison to the business-as-usual scenario (representing an estimated 60 million tons of Carbon Dioxide (CO2) equivalent avoided between 2022-2050 and up to 10 million tons of CO2 equivalent between 2022-2030). Transport is the main source of emissions in Panama, representing 48 percent of energy emissions and 21 percent of total emissions.22 Resilience of the transport sector is of macroeconomic significance: traffic through the canal was affected in 2018-2019 because of the low water level of the Gatun Lake, in part due to changes in precipitation raising concerns about the country’s revenues. Flooding and coastal erosion could also affect the Tocumen airport in the short term, due to urbanization that has led to a loss of natural land cover in the Tocumen river basin and sea level rise. Similarly, the power sector is exposed to hydro-climatological variability as it depends heavily on hydropower, which accounts for 44 percent of total energy produced in Panama. 11. The COVID-19 pandemic has undermined the country’s capacity to address the infrastructure challenges solely through public budgetary resources. Available public resources have been reprioritized to deal with the global health emergency (e.g., assigning more resources to the health and social systems). Those measures mitigated the impacts of the economic and social downturn but increased the public deficit and reduced investments in infrastructure and related services. Infrastructure related jobs contracted by approximately 29 percent during the pandemic, representing a 30- year setback in job creation. Regarding the pandemic’s impacts on jobs, women make up only seven percent of the construction, transport, and primary sectors in Panama23, but they are more likely than men to be self-employed or be in informal jobs and tend to be overrepresented in the commerce and hospitality sectors.24 12. To bolster a resilient and inclusive recovery from the COVID-19 pandemic, the Government of Panama (GoP) intends to rely on infrastructure development supported by the private sector. The GoP’s objective is to expand its investors base – both internationally and domestically – and to tap on institutional/infrastructure investors that might 19 A study by the Organization for Economic Co-operation and Development (OECD) on the public sectors of 26 EU countries found that workforce diversity can improve public-service quality and efficiency gains; increase policy effectiveness; enhance social mobility; and contribute to advancing the reform agenda (OECD 2009). 20 OECD. (2020). The Gender Dimension of the Transport Workfoce: https://www.oecd.org/employment/the-gender-dimension-of-the- transport-workforce-0610184a-en.htm 21 Ibid. 22 The energy sector is the most significant contributor to GHG emissions at 29 percent of the total. 23 Closing Gender Gaps in the World of Work: Central America, Mexico, Panama, and the Dominican Republic (2021) 24 Ibid. Page 10 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) be willing to invest in the country.25 Over the next two years, the GoP is envisioning infrastructure investments of over US$2 billion, mostly in transport, with the aim of stimulating the economy and improving infrastructure services. Private sector involvement will preserve scarce fiscal budgetary resources and improve the efficiency of infrastructure service delivery.26 Most of the current pipeline of Public-Private Partnership (PPP) projects in identification or implementation stages, including road investment projects for a total of more than US$1.8 billion, is expected to be carried out by the Ministry of Public Works (MOP). A sizeable share of those investments will focus on rehabilitation, maintenance, and operation of a program of over 2,000 km of roads under long-term performance-based contracts involving private financing. 13. Private financing for infrastructure through the participation of the private sector is not new in Panama; however, this has been done under an obsolete regulatory framework limiting the full potential of PPPs. Backed by economic growth and the improving business environment, between 1988 and 2018 27, Panama awarded a total of 35 infrastructure projects under different concession schemes following the former concession law. These projects involved total investments of close to US$8 billion in sectors like electricity (which with 22 projects worth US$4.3 billion had the lion share of those investments), information and communications technology, transport infrastructures and water and sanitation. Nonetheless, those contracts were awarded in an ad-hoc manner under a framework that included the following main limitations: (a) Limited institutional and planning capacity. No institutional capacity was developed for strategic infrastructure planning and management across or within sectors. (b) Limited interinstitutional coordination. Concessions were launched autonomously by each entity without coordination on budgetary, programming or operational aspects. (c) Absence of integrated fiscal management. Policies on risk allocation and fiscal management were not formally regulated. (d) Absence of pre-investment funding and project prioritization criteria. Project identification and preparation were mostly ad hoc without considering wider development considerations (e.g., climate change, contribution to the country’s competitiveness, social inclusion etc.). (e) Poor project cycle process and contract management practices. This included: (i) absence of a regulatory framework for the management of contracts by level of services; (ii) lack of involvement of key stakeholders; (iii) no rules for processing unsolicited proposals; (iv) no clear method to assess value for money; (v) a case-by-case allocation of risks; and (iv) lack of a framework that integrates gender standards to ensure that the PPP enabling environment promotes gender equality and women’s empowerment at the policy level. 14. In September 2019, the GoP approved a new PPP Law (Law 93), and, in December 2020, it approved an Executive Decree No. 840 through which Law 93 is regulated. The new Law and its regulation incorporate advice from the World Bank Group (WBG – involving a closed collaboration between the International Bank for Reconstruction and Development (World Bank) and International Finance Corporation (IFC)), on international best practices. This regulation, which has been included as an area of support under the Development Policy Financing series (Panama Pandemic Response and 25 This includes investors that might require stronger Public Private Partnership (PPP)-related development criteria, including Environment Social Governance (ESG) and climate mitigation and adaptation criteria, to invest in this type of projects. This also include A-range investors that typically required stricter levels of collaterals (typically Multilateral Development Banks (MDBs) guarantees + private insurers to reduce or fully remove financial risks) in order to participate in these transactions. 26 For example, when appropriately procured and managed, performance-based contracts in road management are in average 20 to 30% less costly than traditional road maintenance for better outcome – World Bank TP 31, April 2010, The Experience of Brazil in Performance Based Contracts. 27 https://infrascope.eiu.com/ Page 11 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) Growth Recovery Development Policy Loan, P174107 and P175930), supports the GoP’s objective to move away from short-term publicly financed construction contracts and/or ad-hoc concessions towards long-term well-structured PPPs, enabling private finance and improving infrastructure management while transferring risks to the private parties. The new PPP Law sets forth terms and provisions required to attract the most qualified investors competitively. Its main building blocks include: (a) A new institutional organization: A National Committee for PPP (governing body, or Ente Rector) is established, involving, as members28, the relevant ministries to implement the infrastructure development agenda, supported by the National Secretariat of PPP (Secretaría Nacional de Asociaciones Público Privadas, SNAPP), which is under the Ministry of the Presidency.29 SNAPP’s main functions are: (i) supporting the Ente Rector in the evaluation of the PPP project proposals, (ii) providing technical support to different Contracting Public Entities (CPE) involved in the PPP agenda, such as MOP, in the identification, structuring, bidding and management of PPP projects, and (iii) providing technical and operational support to the Ente Rector for broader management of the agenda. This new institutional framework streamlines the institutional organization and improves governance by defining clear roles and responsibilities, including quality control filters. (b) Creation of PPP specialized units within the contracting public entity: PPP units have already been created within the MOP and the Ministry of Economy and Finance (MEF). Dedicated staff are already working on the appraisal and implementation of the very first PPP projects. (c) Improved PPP project cycle process: Clear guidelines have been established for PPP (including good practices for project preparation and approval procedures) that will be made available to the agencies interested in developing PPP. (d) Improved fiscal management requirements: The new legal framework introduces sound approaches for fiscal risk assessment and management to ensure the fiscal sustainability of the PPP program. (e) Improved transparency and conditions of participation of the private sector: The new framework improves transparency and sets in place rules for private sector participation at all stages of the project cycle. Some notable aspects include: (i) projects pursued as PPPs should be part of the five-year investment plan and should be procured under a competitive process; (ii) the requirement of standard analysis (prefeasibility and feasibility studies) for Ente Rector approval as part of project preparation; (iii) requirements for risk identification and allocation in the contract; and (iv) limits for contract renegotiations and adjustments in terms of contract value. 15. Complementing the establishment of a sound operational framework by building capacity and establishing operational processes are crucial to land this novel PPP agenda for the country. Several entities of the GoP have been receiving support from International Financial Institutions (IFIs) to build their capacity. This included the SNAPP which was a beneficiary of grants from the World Bank (Public-Private Infrastructure Advisory Facility, PPIAF and Global Infrastructure Facility, GIF), the Central American Bank for Economic Integration (CABEI) and the Development Bank of Latin America CAF), and the MEF, which benefited from grants from the IDB, to help establish guidelines and operational procedures required to manage the overall PPP agenda (e.g., guidelines on project preparation, communications, fiscal management etc.). To support the PPP agenda through the launch of the first PPP bidding processes for PPP projects, efforts to build the capacity of the main institutions involved need to be doubled to ensure the PPP program is built on a sound foundation, by addressing some of the remaining challenges faced by the GoP, including: 28 Ministry of the Presidency, Ministry of Economy and Finance, Ministry of Public Works, Minister of Commerce and Industries, Ministry of Foreign Affairs and Comptroller General (right of voice). 29 SNAPP does not have a separate legal representative. As such, SNAPP does not have the legal ability to procure or contract services on its own. SNAPP depends on the Ministry of the Presidency, administrate. Page 12 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) (a) Lack of strategic planning: planning instruments and practices for the identification of the GoP's investment priorities and their suitability for PPP are still missing. Most of the investments continue to be planned on an ad hoc basis by each of the implementing agencies (e.g., MOP, Ministry of Health, Energy transmission state company, Empresa de Transmisión Eléctrica S.A., ETESA, among others). (b) Suboptimal project prioritization for public funding allocation: The GoP lacks a mechanism for defining the most favorable implementation schemes for infrastructure investments to optimize the use of public resources. Regardless of the nature of the project, and in the absence of a national infrastructure plan (which would prioritize projects based on parameters such as gender gap, climate change, competitiveness, poverty reduction, access to jobs and education, among others), infrastructure implementing agencies are still allowed to independently determine the contractual framework to apply. As the legal procedure set by the PPP Law requires extra bureaucratic processes and more instances for project revisions during project development, the institutional incentives favor conventional public financing over PPP financing. (c) Limited technical and managerial capacity: as the country embarks on this complex PPP agenda, building the capacity of the CPE involved in the PPP agenda staff is crucial for the success of its implementation. 16. MOP, as the primary contracting public entity for large infrastructures, is a natural beneficiary of the PPP regulatory framework but needs substantial capacity building. Capacity gaps include, among others: (a) Challenges with preparing and implementing PPP projects: While a dedicated PPP unit was formally created in the MOP in October 2020, its operational capacity is still incipient requiring significant technical support. PPP capacities in other potential CPEs involved in the PPP agenda are almost non-existent. Some of the specific institutional and operational challenges include: i. Pending organizational structure and management system of MOP’s specialized PPP unit. ii. Lack of formal inter-and-intra institutional coordination processes. iii. Lack of operational guidelines for project preparation and implementation. iv. Inadequate staffing for PPP project preparation, planning, management, and supervision. (b) Capacity to adopt international best practices in environmental and social (E&S) aspects: adopting international best practices in the management of E&S can help attract more of the best international investors. The GoP is conscious that both in approaching E&S challenges and in implementing best practices, it lags behind and is looking for support to build its capacity.30 17. The GoP has requested the World Bank’s support in creating and strengthening the capacity in CPEs involved in the PPP agenda, for adequately executing the PPP agenda. The proposed Support to Panama PPP Program Development for Recovery Project (the “Project”) consists of a US$7.5 million investment project financing (IPF) loan for technical assistance to strengthen the institutional capacity for mobilizing private capital to finance and manage infrastructures and services. It aims at building the capacity of the MOP to manage PPPs, and potentially other entities involved in the PPP agenda, and to accelerate the readiness – and the chances of success – of the first PPPs in the context of urgent 30Since 2021, most investors have started to require either compliance with the Equator Principles and/or other high-level Environmental, Social, and Governance (ESG) criteria. Norms in the investment community have incorporated these principles very quickly over recent years. ESG-focused funds worldwide through the first 11 months of 2021 received US$649 billion compared to US$542 billion in 2020 and US$285 billion in 2019. ESG funds now account for 10 percent of worldwide fund assets. Moving forward, not complying with international ESG standards would risk losing access to the best international investors (in terms of pricing, maturities and payment structures), potentially greatly affecting goals to expand the country’s investors base. Furthermore, meeting Performance Standards/ESG requirements are key to facilitate access to Multilateral Development Banks’ (MDBs) financing instruments. Page 13 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) economic recovery needs.31 Other GoP bodies potentially involved in the PPP agenda, either as contracting entities or facilitators (e.g., MEF and SNAPP) may also benefit from the Project. This Project anticipates a possible series of IPF guarantees for the first two or three PPPs, also requested by the GoP, to help kick start the program on the best possible foot, attracting new international and domestic investors. 32 18. Building a strong PPP pipeline will require addressing the issue of project preparation funding. PPP project preparation requires time and resources. To develop its PPP pipeline, the GoP relies on public financing to prepare studies which limits de facto the number of projects it can consider and may result in missed opportunities. The GoP would be interested in new/innovative instruments such as a specific fund for technical studies that would be revolving, a “Project Preparation Facility” (PPF). The financing of the design of such a revolving fund will be one of the priorities of the Project. It is reflected accordingly in the Results Framework with a specific indicator and is incorporated as part of the procurement plan. C. Relevance to Higher Level Objectives 19. The Project is consistent with the World Bank Group’s Country Partnership Framework (CPF) for Panama (FY15- 21) discussed by the World Bank’s Board of Executive Directors on March 2, 2015, and the Performance and Learning Review (PLR) of the CPF for the same period, considered on June 29, 2018.33 The Project directly supports Pillar 1: “Supporting Continued High Growth” under Objectives 1 and 3 to “Support enhanced logistics and connectivity” and “Improve budget management transparency” as well as Pillar 3: “Bolstering Resilience and Sustainability” under Objective 6 to “Strengthen resilience to natural disasters”. Moreover, the Project’s activities contribute to increasing climate adaptation and mitigation and improved poverty reduction. The PPP investments that will be facilitated by the Project will help the country to improve access to markets and services for communities and to increase the resilience of the country’s infrastructure to natural disasters and climate change. The Project is also closely aligned with the GoP’s 2019-2024 Strategic Plan under Pillar 3: “Competitive economy to generate employment” to “Implement Public and Private Partnerships” by guaranteeing greater efficiency in public investments and reducing the state financial risk. 20. The Project also supports the implementation of resilient infrastructure consistent with the WBG’s Green, Resilient, and Inclusive Development approach (GRID)34 and the WBG´s Climate Change Action Plan 2021-25.35 Upgrading roads and related infrastructure utilizing performance-based contracts (PBCs) will incorporate measures to reduce carbon emissions and mitigate the impacts of climate and other natural events. The Project is also expected to create opportunities for specialized employment. Finally, it is an opportunity to accompany the introduction of cutting- edge practices in PPP that could potentially be replicated in other countries in Central America. 31 The preparation of Panama's first PPP projects has been undertaken with MDBs’ support, which has already signaled the GoP's s trong commitment on this agenda to the local and international market. 32 The Bank support to the PPP agenda, originally designed conceived as a combined IPF Loan and IPF Guarantee using a Multiphase Programmatic Approach (MPA) modality, was unbundled to accelerate the preparation of this IPF Loan and respond to MOP’s technical assistance needs to prepare and implement the PPP Program. 33 CPF Report No. 93425-PA and PLR Report No. 123665-PA. OPCS extended the period for CPFs ending in FY21 until FY22. 34 World Bank Group, “From COVID-19 Crisis Response to Resilient Recovery—Saving Lives and Livelihoods while Supporting Green, Resilient and Inclusive Development (GRID),” Development Committee, World Bank, Washington, DC, April 2021, https://thedocs.worldbank.org/en/doc/9385bfef1c330ed6ed972dd9e70d0fb7-0200022021/original/DC2021-0004-Green-Resilient- final.pdf. 35 World Bank. 2021. World Bank Group Climate Change Action Plan 2021-2025: Supporting Green, Resilient, and Inclusive Development. Vol. 1 of 2Washington, D.C.: World Bank Group. Report No. 160888-PA. https://imagebank2.worldbank.org/search/33199938 Page 14 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 21. The Project Development Objective is to strengthen institutional capacity for mobilizing private capital to finance and manage infrastructures and services in the Republic of Panama. PDO Level Indicators (a) World Bank Benchmarking Infrastructure Development score for PPP preparation (number)36 (b) PPP projects approved at the feasibility stage of preparation following standards defined in the new operational Guidelines (number) i. Of which PPP projects tendered (number) (c) Institutions with a specialized PPP group operationalized and strengthened (number)37 B. Project Components 22. The Project will be structured around two components. The first component will support the creation/improvement of PPP capacities within MOP and other entities involved in the planning, preparation, implementation, and funding of PPP projects.38 The second component will enhance MOP’s existing capacity to manage the Project, especially financial management and procurement aspects. 23. Component 1: Strengthening of PPP planning and institutional capacities for infrastructure development (US$6.8 million). This component will finance consultancy and non-consultancy services, the provision of goods and minor works39 to help build the capacity of the MOP and other relevant GoP entities involved in the PPP agenda (other relevant GoP entities involved in the PPP agenda will be identified as needs emerge). The component will support: (a) Strengthening planning capacity of the MOP and other relevant GoP entities involved in the PPP agenda for PPP identification and prioritization, including through, inter alia: (i) the carrying out of studies, the provision of technical assistance for the development of planning tools and instruments and the drafting of proposed regulations and guidelines, in line with international best practices, including on cutting-edge approaches on global and local stakes such as climate change, gender, citizen engagement, environment and social management of projects; and (ii) the provision of training.40 (b) Building implementation capacity of the MOP and other relevant GoP entities involved in the PPP agenda for the 36 The standardized indicator assesses the quality of the regulatory frameworks for PPP project preparation in Panama, benchmarking them against internationally recognized good practices. The evaluation result is an index up to 100. The target of this indicator is the global average (44). 37 Operationalized and strengthened means with organizational structure approved, managerial team appointed, and operational framework in place (procedures, management tools, equipment). 38 The financing of the implementation of any PPP projects is beyond the scope of this Project. 39 Works include minor office refurbishments to install IT and office equipment within existing GoP buildings. 40 Some of the gender-responsive activities at identification and screening include conducting gender analyses and developing a gender action plan to allocate resources and assess the projects’ potential to promote gender equality. Page 15 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) execution of a PPP program, including through, inter alia: (i) the carrying out of studies and the provision of technical assistance for the development of operational policies and guidelines for PPP preparation, implementation and monitoring following international best practices, including, on cutting-edge approaches on global and local stakes such as climate change, gender, citizen engagement, and environment and social management of projects; (ii) development of management tools including the provision of Information Technology, office equipment and the carrying out of minor office refurbishment works within existing government buildings; and (iii) the provision of training. (c) Strengthening institutional capacity to mobilize finance for the development of the PPP agenda, through inter alia: (i) the carrying out of studies and the provision of technical assistance to set the conditions for increased local, regional and international private participation in a PPP program and to design a fund for the preparation of PPP projects; and (ii) the provision of training. 24. Component 2: Project Management Support (US$0.7 million). This component will finance the provision of support to the Project Implementation Unit (PIU) for project management and operation, including, inter alia, financial management, procurement, environmental and social requirements, as well as for carrying out the audits of the Project. 25. The Project will help leverage the country’s climate change commitments under the PPP agenda. The World Bank, with support from the Climate Resilience & Environmental Sustainability Technical Advisory (CREST) of the PPIAF, recently helped the GoP develop a methodology to link its NDCs to low-carbon, climate-resilience infrastructure PPP financing and development. Looking ahead, the GoP is interested in further incorporating climate change mitigation and adaptation aspects into its PPP agenda. 26. The Project will reduce the impacts of climate change in the infrastructure sector by integrating climate adaptation considerations into planning, guidelines, regulations and training for executing PPP projects. The activities financed by the Project are aimed at addressing, among other things, the projected increase in the intensity and frequency of rainfall (with annual precipitation estimated to increase between 10 and 30 percent by 205041, due to the impacts of climate change which pose a risk to PPP projects in the transport sector). Specific activities financed under the Project that address climate adaptation are estimated to be US$0.75 million and include: (i) implementation and scale- up of a climate-informed methodology developed under PPIAF-CREST Trust Fund in order to robustly prioritize effective climate adaptation projects42; (ii) development of a climate change vulnerability assessment of transport sector that will inform the Master Plan of transport logistics, one of the activities supported by the Project; and (iii) technical assistance (inter alia hiring of specialized consultants and training) to integrate climate change mitigation and adaptation considerations into MoP new bidding guidelines to prepare and develop PPP projects in line with the recent commitment under the country’s NDC. 27. The Project will support the GoP in addressing gender gaps in the transport sector with a strong emphasis on employment through institutional capacity to implement PPPs and boosting gender equality. The Project, conceived to accelerate the incorporation of international best practices in the novel PPP agenda, will support the GoP in integrating in its Operational Guidelines and Manuals for the development of PPPs, existing national gender equality policies and strategies, such as the high-level public-private Gender Parity Taskforce, and international coalitions, such as The Equal 41Source: https://climateknowledgeportal.worldbank.org/country/panama/climate-data-projections 42The methodology developed under PPIAF-CREST Trust Fund in March 2022, aimed to align investments with the NDC commitments and prioritize climate resilient infrastructure projects in Panama to ensure that the country's infrastructure agenda and PPP Program contributes to the objectives of sustainability and climate resilience, especially those incorporated in the NDC. Page 16 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) Pay International Coalition (EPIC). The Operational Guidelines and Manuals will consider any legislation and structural gaps (e.g., gender wage gap, access to credit, skills development, gender neutral designs) that may lead to gender inequalities within the PPP regulatory and legal framework and will propose hands-on measures to contribute to reducing such gaps in the PPP program. Specific actions envisioned at the planning level include conducting a gender analysis and developing gender action plans to allocate resources and assess projects’ potential to promote gender equality. Following international best practices43, the Operational Guidelines and Manuals will also consider capacity building and skill development, procurement strategies to facilitate the participation of women-owned or women-led businesses in bids and gender considerations into performance-based contracts to increase women’s employment in the infrastructure sector. To ensure employment of women in the institutions in charge of implementing the PPP program through the provision of long-term jobs in the upcoming new PPP units, technical assistance will be financed to incorporate a gender perspective into upcoming human resources policies and to address identified constraints for women’s recruitment, retention and promotion. Activities to foster gender equality in those institutions can include selection procedures that are skilled-based, vacancies promoted in spaces accessible to women or in collaboration with universities, and equal pay and definition of mechanisms to respond to sexual harassment in the workplace. Two indicators in the Result Framework (RF) will measure the progress towards closing the gender gap: first, the PPP projects approved at the feasibility stage of preparation following standards defined in the operation Guidelines (which will include entry points to incorporate gender into transport planning and promote women’s employment). This will be a determinant in the adoption of proactive measures on gender in the implementation of the PPP agenda. Second, on the intermediate result level, the gender focus of the capacity building of staff in institutions involved in the implementation of the PPP agenda will be measured by the percentage of women promoted or hired in PPP units as a share of total hiring based on equal requirements for skills and competences, and it will ensure that there will be no gender bias in the recruitment and recognition of women in the GoP staff involved in implementing the PPP program. 28. The Project will support the introduction of citizen engagement (CE) mechanisms to improve participation of citizens and relevant stakeholders in the development of the national PPP agenda. As part of the Environmental and Social Management System (ESMS) developed under the Project, the Project will support the procedures in the MOP guidelines for PPP, to ensure citizen participation in PPPs, including methods for consultation and feedback mechanisms, such as satisfaction surveys, focus group meetings, workshops, community scorecards and participatory planning. These procedures will consider the whole project cycle, including: (i) citizen engagement events during project preparation to gain insights from community members; (ii) incorporating feedback into project design and implementation; (iii) developing differentiated strategies to ensure vulnerable groups are not excluded from CE activities as a result of social, cultural or language barriers; and (iv) tracking appeals resolved through the Project’s grievance mechanisms and ensuring adaptive learning, leading to changes that will benefit the poor and marginalized. These procedures could serve as guiding principles for other GoP agencies and private sector entities to standardize CE practices in PPPs, as well as monitoring tools and mechanisms for interested parties, including civil society organizations and communities benefiting from PPPs. Progress will be monitored in the RF through the following intermediate indicators: (i) Proposal for improved regulations that facilitate infrastructure development and service provision aligned with PPP law completed, including gender, climate change and citizen engagement aspects (Yes/No); and (ii) Share of beneficiaries consulted - disaggregated by gender and ethnicity (Percentage) – who report satisfaction with the Project’s consultation/communication mechanisms and believe their feedback has been considered by the PIU and reflected in the Project’s activities and outputs. 29. The Project is also a Maximizing Finance for Development Enabling Project. The Project will help strengthen capacity and processes to enhance Panama’s investment environment and support the mobilization of private capital investments for the delivery of infrastructure and infrastructure services. 43 Applying a Gender Lens throughout the PPP Project Cycle – PPP Legal Resource Center World Bank Page 17 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) C. Project Beneficiaries 30. The Project directly targets one category of beneficiaries and several others indirectly. The primary target group of beneficiaries will be the GoP institutions and staff working on the planning, preparation, and implementation of the PPP agenda, notably the MOP, and other relevant GoP entities that will be identified as the PPP program unfolds. They will benefit from all to enable the mobilization of private financing for infrastructure projects. The secondary target group of beneficiaries will be the private sector, including: (i) consulting and construction firms involved in the PPP agenda; (ii) financial institutions; and (iii) PPP investors. The wider public is also expected to benefit from improved accessibility to markets, jobs and services, as well as the efficiency of infrastructure management and service delivery as a result of the Project. Developing infrastructure outside of large cities that facilitate territorial development will improve rural and indigenous populations’ access to basic services. Improving the connectivity of the country through logistics infrastructure will link producers to regional and the already existent infrastructure that is oriented to the international markets. Furthermore, investments in the regional transportation network will also support growth in tourism and address rural poverty in general ultimately reducing inequality.44 Moreover, private management of infrastructure services under a modernized regulatory framework will improve the efficiency of service delivery, offsetting the additional costs of private sector financing.45 44IMF. 2020. “Panama Selected Issues.” IMF Country Report No. 20/125. Washington, DC: International Monetary Fund. 45 Forexample, when appropriately procured and managed, performance-based contracts in road management are in average 20 to 30% less costly than traditional road maintenance for better outcome – World Bank TP 31, April 2010, The Experience of Brazil in Performance Based Contracts. Page 18 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) D. Results Chain 31. Figure 4: Project’s Theory of Change E. Rationale for Bank Involvement and Role of Partners 32. The GoP and international investors recognize the value added of World Bank support for introducing best practices in PPPs. The World Bank has been closely involved in the development of the GoP’s PPP agenda from the onset, by advising on the preparation of Law 93 and providing advice on the regulation, definition of a roadmap for institutional strengthening, development of operational guidelines, introduction of innovative concepts for Panama such as PBCs, and initial steps in the preparation of studies for the first projects. Looking ahead, the GoP aims at incorporating in its PPP agenda, additional best practices in areas such as transparency (Construction Sector Transparency Initiative, COST initiative), Environmental and Social Framework (ESF), citizen engagement, gender responsive infrastructure and climate change, all of which have been supported by the World Bank with financial support from PPIAF and the GIF over the past three years. Finally, upon request from the GoP, the World Bank support could be expanded to guarantees for the first deals that would help signal to domestic and international investors (not normally involved in Panama), the robustness and sustainability of the GoP’s program.46 A first IPF guarantee Implementation Support to Panama on PPP Agenda 46 The World Bank is preparing the first of several intended guarantees to be offered to the private sector, most of the initial projects are Page 19 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) (P174818) is being considered for the first PPP Project, the rehabilitation and maintenance of the Panamericana East of Panama City, which is currently at the bidding stage. F. Lessons Learned and Reflected in the Project Design 33. The following lessons from the implementation of World Bank projects underpin the design of the Project: (a) Successfully building capacity on a complex agenda such as PPP requires sustained long-standing efforts. Building on international best practices, the GoP has advanced in the structuring of the capacity of key institutions, notably the SNAPP, in a consistent fashion, with support from the World Bank and other international financial institutions. Now that the PPP agenda is on the verge of the first concrete PPP, efforts must be doubled to make sure the program gets off to a good start. Ramping-up the support to the GoP through a dedicated project focused on technical assistance is therefore warranted. (b) Closed collaboration among the WBG institutions is fundamental to crowding in the private sector in Panama. As the agenda became more concrete with the launch of the preparation of the first PPP in parallel with institutional capacity building (in a learning by doing approach), the support of IFC, already involved in the WBG dialogue on the institutional reform, has become more crucial in complementing the World Bank involvement. Such collaboration is exemplified by the preparation of the first PPP project, the rehabilitation and maintenance of the Panamericana East highway, where the World Bank advised the GoP on the preparation of the first step (pre-feasibility study) and IFC took over to finalize the process with a mandate to help finalize the preparation of this first PPP, including the feasibility study and the launch of the bidding process. Moreover, IFC will support the PPP agenda more broadly by helping with the preparation of a number of other key projects, including a Coastal highway (“Costanera”) and the implementation of the GoP program of performance-based management of the core road network (close to 2,000 km). Looking ahead, IFC intends to expand its support through new mandates to help the GoP prepare new PPPs and, possibly, financial support to some of those operations. (c) Success in launching a PPP program relies on both the comprehensiveness and depth of the reforms to enable private sector mobilization. The World Bank has organized assistance around the full PPP cycle, from planning to execution and financing. Aspects, such as transparency in the processes and the treatment of environmental and social challenges received specific attention. The World Bank has helped the GoP adapt COST best practices to its context. Similarly, the relevance of bringing in best practices in the treatment of environmental and social issues to broaden the investors base was confirmed during an early market sounding with the private sector in November 2020: the market sounding highlighted the value of considering the World Bank’s Environmental and Social standards in the investments.47 in the transport sector. Guarantees to the country’s first projects are needed given the lack of track record of in the implementation of PPPs under the new framework. A detailed market sounding conducted in October 2020 indicated that the untested regulatory regime for PPPs and limited capacity of the GoP could deter investors. Moreover, the guarantees would provide confidence to the market that payments will be honored in strict agreement to the contract, without delays. The GoP has received important support for initial steps of its PPP agenda from various institutions in the past two years, notably grants to SNAPP and MOP from the World Bank’s PPIAF and GIF. 47 Bank support is more relevant than ever under the current global macroeconomic environment. Results from the November 2020 market sounding will be confirmed by IFC during the preparation of the PPP for Panamericana Este. Page 20 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 34. Project implementation will be undertaken by the MOP’s Program Coordination Office (PCO)as the PIU for the Project. The PCO was created in 2008 (Executive Decree No. 35 of March 4, 2008) to be the liaison unit between the MOP and MDBs for implementing the loan agreements, and to ensure the technical and administrative development of road related programs, coordinating with the entities in charge of the execution. The PCO has acceptable institutional capacity and long-standing experience in implementing donor-funded projects, mainly with the IDB, the CAF and the CABEI. Currently, the PCO manages three programs for a total financing of US$247 million. The administrative, budget execution and fiduciary services for the MOP’s existing PPP Unit and other relevant GoP entities involved in the PPP agenda, such as SNAPP or the MEF, will be centralized in the PIU. The PIU’s current capacity includes dedicated full-time staff positions, which will be assigned full-time or partially to this Project, as needed, in legal, procurement, financial management and project monitoring aspects with extensive experience in implementing MDB-financed projects. MOP’s capacity will be strengthened with consultants to provide E&S support to the Project, as needed during the project lifecycle. The specific functions and responsibilities will be defined in the Project Operational Manual (POM), which will be a condition of effectiveness of the Project. 35. The MOP’s existing PPP Unit will define, prepare, and supervise the Project’s activities and will coordinate closely with the PIU to launch the procurement processes and ensure adequate implementation. This will be done with the support of external consultants that will be hired under the Project’s scope. 36. In case other relevant GoP entities involved in the PPP agenda participate in the Project, the PIU will coordinate with them on: (i) drafting terms of reference (ToRs), (ii) procurement of the intended activities (with support from the relevant GoP entities involved in the PPP agenda participating in the Project); and (iii) monitoring progress and completion to ensure the quality of the delivered activities (in consultation with the relevant GoP entities involved in the PPP agenda participating in the Project). The PIU will be responsible for producing project progress and fiduciary monitoring reports and coordinating compliance with the World Bank´s procurement guidelines. The PIU will also be responsible for submitting disbursement requests to the World Bank. For any entity involved in the PPP agenda participating in the Project, payment requests will be processed by the PIU after the authorization of the payment by the relevant entity. The MEF will be in charge of the overall program monitoring, budget allocation, and treasury operations. 37. MOP's decisions on the use of the Project's resources will be made with the advice of the SNAPP. SNAPP, as the technical support unit and the advisor in the overseeing of the implementation of the PPP agenda/program, will confirm the alignment of the Project implementation with this agenda, as set forth in the new PPP framework.48 SNAPP will also ensure the complementarity of the activities to be financed by this Project with other PPP regime implementation activities – aiming to strengthen PPP capacities – that are currently being supported by other MDBs. B. Results Monitoring and Evaluation Arrangements 38. The Project’s Monitoring and Evaluation (M&E) plan is detailed in section VII. MOP’s PIU will collect data on: (i) Project Development Objective (PDO) and intermediate indicators; and (ii) financial statements. The PIU will prepare 48 Law 93/2019, Article 12. Page 21 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) semiannual progress reports not later than forty- five (45) days after the end of each calendar semester, covering the calendar semester. 39. Reports on the Project’s results indicators, annual reports on the use of funds, and semiannual reports on Project finances. The structure of these reports will be detailed in the POM. In addition, MEF, jointly with the World Bank, will carry out a mid-term review (MTR) of the progress achieved in the implementation of the Project. The MTR will provide an opportunity to make any adjustments that may be needed to accomplish the Project’s objectives. C. Sustainability 40. The following considerations regarding sustainability have been reflected in the Project: (a) Sustainability at the institutional level. The sustainability of the Project’s outcomes at the institutional level derives from the broad involvement of the main stakeholders—MEF, SNAPP and MOP—in the development of the PPP agenda. The GoP has demonstrated this commitment through the enactment of Law 93, making reforms in a consistent and relatively fast track fashion to the existing institutional framework leading to the creation of the SNAPP, the preparation of a regulation, guidelines and other instruments, and the development of a pipeline of PPP. The GoP is also committed to bring in international best practices, seen as an opportunity to widen the basis of potential international investors and attract the best. (b) Sustainability at the conception level. The World Bank has accompanied the development of Panama's PPP agenda in recent years. Following the adoption in September 2019 of the PPP Law, the formulation of which was supported by the World Bank, additional support from the World Bank has further fostered the agenda through technical assistance using grant resources from the PPIAF and GIF to advise on the preparation of the regulation and building the institutional and operational capacity. The Project builds on those previous engagements with an initial focus on MOP, the first – and main – beneficiary at the early stage of implementation of the agenda but remains flexible keeping the possibility to include additional relevant GoP entities involved in the PPP agenda, first of which are SNAPP and MEF, to make sure the GoP’s PPP agenda builds a solid track record of projects. (c) Sustainability during operations. The Project will rely on MOP's existing institutional capacity within the PCO and extensive experience in implementing MDB-financed projects. MOP’s existing capacity has been recently improved with the appointment of three new full-time staff members (legal, procurement and financial management) and will be further strengthened with the support of E&S specialists that will be assigned from MOP's existing capacity to the Project, to support work demand during the Project´s lifecycle. In addition, the existing PPP framework, which includes SNAPP’s technical and operational support to the Ente Rector for the PPP agenda development, will continue to be utilized for the Project. Page 22 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis (if applicable) Technical Analysis 41. The technical design of the Project is simple and straight-forward, being limited to conventional technical assistance for institution-building in the form of consultant services and small goods. This responds directly to the GoP’s priority to build PPP capacity, consistent with international best practices in the main public institutions involved in the planning, structuring, and management of PPP in infrastructure, including the support with Information Technology (IT) and office equipment within existing GoP buildings. The required capacity building is targeted to the public sector, specifically to governmental bodies charged by law with budgeting, programming, procuring, and supervising investments in physical public goods such as roads, allied works, and other types of public infrastructure and facilities. Economic Analysis 42. The project is designed to strengthen the capacity in MOP (and possibly other entities as needed) to set up a sound PPP institutional framework and manage the PPP agenda. Given the technical assistance nature of this Project, where mainly consultancy services and small goods will be contracted or acquired, and the absence of significant work investments and cash flows generated from concrete project activities, a traditional economic analysis with an assessment of net present value and/or economic rate of return is not possible. However, the Project will contribute to developing economically viable projects: while hard to quantify on a general basis because of the complexity of the attribution, private management of infrastructure services under a modernized regulatory framework is expected to improve the efficiency of service delivery more than offsetting the additional costs of private sector financing. 49 Moreover, the PPP regulation requires a twofold evaluation process, at project pre-feasibility and feasibility stages, where economic evaluations – and value for money – are pass-fail parameters. As a result, the Project, which will finance key planning studies and support building the capacity in MOP and other potential CPEs involved in the PPP agenda, will indirectly contribute to identifying and selecting projects that will be economically viable. 43. The Project is expected benefit the populations by enabling improvement in access to, and quality of infrastructure services subject to PPP. For example, a number of the first PPPs the GoP is considering are focused on road transport improvement. Those are expected to contribute to improving both urban and rural populations’ access to basic services, e.g., travel time to schools and health centers for rural infrastructures. Additional benefits of those types of projects include: (a) Better quality and safer road network, and reduced logistics costs thereby leveraging Panama’s strategic geographical position as a major trade and transit hub for Central America to spur the whole economy of the country. (b) Reduced agricultural losses from limited connectivity, market access and agro-logistics facilities especially among small farm families in rural areas. (c) Improved traffic safety. 49 Forexample, when appropriately procured and managed, performance-based contracts in road management are in average 20 to 30 percent less costly than traditional road maintenance for better outcome – World Bank TP 31, April 2010, The Experience of Brazil in Performance Based Contracts. Page 23 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) (d) Improved road sector planning, management, accountability and operational maintenance. (e) Investments in the regional transportation network will also support growth in tourism and address rural poverty in general ultimately reducing inequality.50 44. International experience shows that developing sound PPP agenda in the construction, improvement, and conservation of infrastructure fosters broad economic benefits to the countries. Some flagship examples include the construction, rehabilitation, or maintenance of existing primary road network in countries such as Brazil, Argentina, Mexico and Colombia.51 In Panama, the poor conditions of the road network and the lack of dedicated resources for maintenance, position a PPP scheme as a suitable option to improve the logistics and broader connectivity of the country rapidly, for the benefit of road users. In general, benefits of PPP include, among others, reduced need of public capital investment, better adaptation of the cash flow needs to the timing of usage of the infrastructure by beneficiaries, faster completion of the works, improved long-term quality of the output’s efficiencies, improved cost-effectiveness, improved risk transfer. In addition, PPPs can benefit countries facing constraints on public resources and fiscal space, exacerbated in the context of the COVID-19 pandemic, to fill the needs in infrastructure to foster growth. Mobilizing private financing instead of relying on upfront public investments, spreads payments over a longer period of time creating budgetary certainty. 45. Value addition of the World Bank's support. The World Bank is in a unique position to support the GoP in implementing its PPP Program. The law on PPP, adopted in September 2019, builds on international best practices that were in part brought by the World Bank through several years of Advisory Services and Analytics engagement with the GoP. The World Bank’s knowledge, experience and unique relevance in supporting the PPP infrastructure agenda is recognized by the various stakeholders in the GoP such as the Presidency, the MEF and sector ministries such as the MOP. In addition, the WBG involvement in the launch of the agenda is valued by the private sector: the market sounding conducted in October 2020 showed that the World Bank involvement was a token of seriousness and credibility of the agenda for the private sector. B. Fiduciary (i) Financial Management 46. The World Bank carried out a Financial Management Assessment (FMA) on June 9, 2022, to evaluate the adequacy of Financial Management (FM) arrangements proposed for the Project and the potential risks of mismanagement of resources. The assessment determined whether the implementing agency has acceptable FM and disbursement arrangements in place to adequately control, manage, account for and report on the use of the financing. The assessment also considered the mitigation measures in place to lower the likelihood of occurrence of the risks and the impact on the achievement of the PDO. 47. The FM arrangements for the Project will benefit from the experience of the existing PCO under the MOP during the implementation of donor-funded projects, mainly with the CAF, IDB and the CABEI. 50 IMF.2020. “Panama Selected Issues.” IMF Country Report No. 20/125. Washington, DC: International Monetary Fund. 51PPP Maintenance, Rehabilitation and Operation (MRO) packages procured by the Government of Mexico for improving quality of roads and service provision in a subset of the Mexico’s toll road system have resulted, for instance, in increased quality and reve nue generation as well as in reduced maintenance costs. (Source: internal data shared by the Secretariat of Finance and Public Credit of Mexico). In Argentina, Brazil and Colombia, contract savings for utilizing PPP interventions for road rehabilitation and maintenance have ranged between 10 to 25 percent. (Source: WB internal report). Page 24 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) 48. The Project will be implemented by the PCO with full responsibility for all project FM-related tasks, including budgeting, accounting, financial reporting and disbursements. The PCO has acceptable institutional capacity and long- standing experience in the implementation of donor-funded projects. Therefore, the overall FM arrangements are considered adequate for this operation. 49. The Project budget will be under MOP's budget, following procedures of MEF and the Comptroller General of the Republic (CGR). The budgeting and accounting of the Project will be carried out in the GoP’s financial information system Integration and Technological Solutions of the Operational Management Model (ISTMO), which integrates accounting, budgeting and treasury functions. 50. The Project's internal control system will be outlined in the POM conforming to procedures and policies issued by the CGR. The main disbursement method applied in the Project will be the method of Advance, in which funds will flow to a segregated Designated Account in US dollars based on six-month forecasts. The Designated Account will be in the Borrower's Multilateral Single Treasury Account (Cuenta Única del Tesoro). The records and bank reconciliation will reflect transaction activity of a segregated sub-account for the loan. Direct Payment and Reimbursement methods will also be used. The disbursement procedures in terms of supporting documentation requirements, frequency of documentation for eligible expenditures paid from the Designated Account and minimum application size for Direct Payments and Reimbursements will be described in the Disbursement and Financial Information Letter. The flow of funds is presented in Annex 2. 51. The PCO will submit to the World Bank semi-annual Interim Unaudited Financial Reports (IFRs) no later than 45 days after the end of each calendar semester. Annual audits will be carried out by an eligible private audit firm under Terms of Reference prepared by the Borrower and acceptable to the World Bank. The audit reports will be submitted to the World Bank no later than six months after the finalization of each fiscal year. (ii) Procurement 52. Procurement will be conducted using the World Bank’s ‘Procurement Regulations for IPF Borrowers’, issued in July 2016 and updated in November 2020, for the supply of non-consulting and consulting services, and with the provisions stipulated in the Procurement Plan and in the POM. The fiduciary implementation will be under MOP's responsibility, with inputs to carry out the procurement activities including technical specifications and ToRs to be provided by the relevant GoP entities involved in the PPP program participating in the Project. In this context, a procurement capacity assessment of the MOP was carried out on July 8th, 2022, considering the existing structure and staff that is currently implementing MDB's financed project to identify any specific risks concerning the implementation of procurement activities and proposed mitigation measures. The results of the capacity assessment and actions to address the identified risks are detailed in Annex 1. Additionally, a Project Procurement Strategy for Development (PPSD) was agreed upon on August 29, 2022, that identifies fit-for-purpose approaches to the procurement expected within the Project including lessons learnt from the ongoing operations in Panama. .C. Legal Operational Policies . Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No . Page 25 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) D. Environmental and Social 53. The environmental and social (E&S) risks associated with the Project and the Environmental and Social Risk Classification are moderate. No pre-feasibility or feasibility studies for future PPP investments will be financed by the Project and apart from minor office refurbishments to install Information Technology and office equipment within existing government buildings, no construction works are planned. Project activities are not expected to entail significant E&S risks and may result in significant benefits in terms of improving E&S risk management of Panama’s PPP program in the future. The following environment and social standards (ESS) are relevant for the Project: ESS1, Assessment and Management of Environmental and Social Risks and Impacts; ESS2, Labor and Working Conditions; ESS3, Resource Efficiency and Pollution Prevention and Management; ESS4, Community Health and Safety; ESS5, Land Acquisition, Restrictions on Land Use and Involuntary Resettlement; ESS6, Biodiversity Conservation and Sustainable Management of Living Natural Resources; ESS7, Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities; ESS8, Cultural Heritage; and ESS10, Stakeholder Engagement and Information Disclosure. Among the proposed activities of the Project, an ESMS will be developed that responds to the needs and responsibilities of MOP (and potentially other relevant GoP entities involved in the PPP agenda) in the E&S aspects of planning and implementing future PPP projects. Following international practices, the ESMS is expected to notably outline: (i) an environmental and social policy; (ii) organizational capacity requirements, including requirements and profiles for trained and competent environmental and social specialists; (iii) procedures for the identification and management of the environmental and social risks of the potential PPP project portfolio; (iv) monitoring and supervision procedures (including monitoring performance MOP and other relevant GoP entities involved in the PPP agenda during project execution); v) procedures to ensure citizen participation and grievance redress; and (vi) reporting requirements. All Project outputs, including but not limited to the design of the ESMS, the structuring of the PPF, the transport master plan and other strategies and guidelines for the national PPP program, will reflect the pertinent requirements of national laws and regulations, the ESS, as well as good international practice. 54. Among potential risks, a primary social risk relates to the potential non-inclusion of stakeholders, including vulnerable groups, in consultation processes, which are key to informing the implementation of project activities such as the development of national strategies and plans in the transport sector, among others. Additional risks are related to the limited E&S capacity to implement project activities, particularly those related to strengthening E&S management systems within MOP and for other relevant GoP entities involved in the PPP agenda, which could result in a non-operative or a weak ESMS that lacks the tools and organizational capacity to properly manage E&S risks of future PPP investments. Minor occupational health and safety risks are related to the employment of a few project workers who will primarily be office based and conduct possible site visits. Such activities may entail ergonomic impacts as well as risks associated with road travel and site visits, including the risk of COVID-19 contagion. The Project may include minor refurbishments to offices to accommodate the installation of IT/office equipment which may also give rise to minor site-specific Environment Health and Safety (EHS) risks and impacts. Given the nature of the operation, the Project is expected to have limited if any adverse risks or impacts in relation to labor, community health and safety, or Indigenous Peoples, unless the risk of non-inclusion of stakeholders in the consultation and participatory processes materializes. 55. To mitigate and manage the risks and enhance the expected E&S benefits of the Project, one environmental and one social specialist will be hired or assigned (from other relevant units within MOP) to the Project’s PIU, once it becomes effective, to support implementation in accordance with project manpower needs and deliverables. Specialized consultants with relevant E&S expertise (potentially including individuals and firms) will be contracted to carry out specific activities under the Project. The PIU’s E&S specialists will ensure that consultant ToRs outline the relevant E&S scope and expertise required for specific activities, as well as overseeing the quality and relevance of Page 26 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) deliverables from an E&S perspective. As needed, additional E&S personnel or consultants may also be hired within the CPE involved in the PPP agenda to implement specific project-financed activities related to the enhancement of these institutions’ environmental and social management capabilities. All E&S staff and consultants directly supporting the Project will receive orientation and accompaniment from the World Bank on ESF requirements as well as the commitments of the Project’s Environmental and Social Commitment Plan (ESCP). The World Bank will also review all draft ToRs to ensure relevant E&S considerations are included, as well as technical assistance outputs of the Project with E&S implications, to ensure they are consistent with the requirements of the ESSs. A project-specific Stakeholder Engagement Plan (SEP) has also been developed and consulted with key stakeholders during the preparation phase of the project. The ESCP and SEP were disclosed by the World Bank and the client prior to finalizing Appraisal on July 20, 2022.52 56. The SEP provides a strategic approach to ensure that project-financed activities, when relevant, incorporate participatory and consultation processes to ensure that stakeholders’ feedback informs the development of project outputs that will support the implementation of future PPP projects nation-wide. The SEP, including its Grievance Redress Mechanism (GRM), will be updated and re-disclosed sixty (60) days after the Effective Date of the Project, as details and terms of reference of Project-financed activities are further defined. The updated SEP will include the selection of project-financed activities that will require a dedicated participatory or consultation process, relevant stakeholders for the selected activities, specific strategies to ensure the participation of relevant stakeholders, including vulnerable groups, and identification of best channels for dissemination of information, depending on the nature of each activity, a detailed timeline and costs for these activities, and an update of the Project-level GRM, if necessary. With respect to potential minor office refurbishments to accommodate the installation of IT/office equipment to be procured as part of the Project, MOP will assess the potential environmental and social risks associated with the proposed activities before bidding out such activities, and where relevant, develop the corresponding management measures in accordance with national law and the ESSs. As per the ESCP, any necessary measures shall be included in the respective bidding documentation and contracts and implemented during the installation of the equipment. V. GRIEVANCE REDRESS SERVICES 57. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project- related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and World Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org 52 The documents can be found on MOP’s website in the following link: http://www.mop.gob.pa/index.php/oer-ucip/conoce-oer-2. Page 27 of 45 The World Bank Support to Panama PPP Program Development for Recovery Project (P174535) VI. KEY RISKS 58. The overall risk is Moderate. The only risk rated Substantial after mitigation measures is the institutional capacity for implementation and sustainability risk. 59. The risk associated with institutional capacity for implementation and sustainability is rated Substantial. The PPP agenda is new and ambitious for the GoP in a context where the country’s institutional strength and governance are not at the forefront. This represents a substantial risk for the adequate implementation of the Project due to the following risks: (i) the ambition of the new PPP program and the level of effort needed to build the required capacity in the GoP that will require coordination across different GoP agencies, and within MOP; (ii) the relatively high turnover in SNAPP and other GoP entities involved in the PPP agenda and participating in the Project, the lack of specific experience in the PIU, within the PCO in executing World Bank projects, and limited capacity of the MOP in implementing PPPs; and (iii) exogenous risks linked to the intervention of the CGR53 because of its lack of experience with PPP contracts that could delay procurement and payment processes. With regards to mitigation, the entire project is designed to reduce the risk of having insufficient capacity to implement the new and ambitious PPP agenda. In particular, the following measures are expected to mitigate the risks: (i) close implementation support of the World Bank and continuous dialogue between the various stakeholders of the PPP agenda on the impact of the Project on GoP entities to facilitate buy in and coordination; (ii) in addition to aspects of project design to build capacity, training of the new PPP unit in MOP and other GoP entities involved in the PPP agenda and participating in the Project, the design and use of detailed PPP preparation and implementation procedures for new staff, and the design of HR management policies and tools to be used in the GoP units in charge of PPP that have proven successful in retaining staff in other countries and contexts; (iii) SNAPP, MOP and other relevant GoP entities will maintain continuous dialogue between MOP, SNAPP and the CGR authorities to sensitize them on the concept of PPP and proposed modalities of implementation in the context of Panama. In addition, establishing smooth communication with the CGR when processing and executing the contracts will be key to facilitating timely decision-making on procurement and payment processes. These mitigation measures are expected to help reduce the likelihood of the risk of inefficient coordination, staff turnover, limited commitment and experience, especially over time. Should they materialize though, the impact on procurement and payment processes may be substantial. As a result, . the residual risk remains Substantial. . 53The Office of the Comptroller General of the Republic of Panama is an independent state agency, which has oversight and control of public funds and goods including review the contracts to ensure they are technically sound and financially supported through a proper budget allocation in order to provide the referendum as well as the payments approval during contract execution. Page 28 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Panama Support to Panama PPP Program Development for Recovery Project Project Development Objectives(s) The objective of the Project is to strengthen institutional capacity for mobilizing private capital to finance and manage infrastructures and services in the Republic of Panama. Project Development Objective Indicators RESULT_FRAME_TBL_ PD O Indicator Name PBC Baseline End Target Strengthened institutional capacity for mobilizing private capital to finance and manage infra World Bank Benchmarking Infrastructure Development score for 29.00 44.00 PPP preparation (Number) PPP projects approved at the feasibility stage of preparation following standards defined in the new operational Guidelines 1.00 5.00 (Number) PPP projects tendered (Number) 0.00 3.00 Institutions with a specialized PPP group operationalized and 1.00 3.00 strengthened (Number) PDO Table SPACE Page 29 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) Intermediate Results Indicators by Components RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline End Target Component 1: Institutional strengthening component Institutional reform proposals for improving planning capacity for infrastructure and service provision developed that are gender- 0.00 1.00 responsive and consider climate change (Number) Infrastructure master plans, including strategies for developing and funding infrastructure and service provision that increases 0.00 1.00 climate change resilience with private participation developed (Number) Staff trained in planning instruments for infrastructure and service provision (Number) 0.00 20.00 Proposal for improved regulations that facilitate infrastructure development and service provision aligned with PPP law completed, including gender, climate change and citizen No Yes engagement aspects (Yes/No) Staff trained in preparing and executing PPP projects in line with 0.00 50.00 the new operational Guidelines (Number) Of which women (Number) 0.00 25.00 Share of women promoted or hired in PPP units of total hiring based on equal requirements for skills and competences 0.00 40.00 (Percentage) Share of beneficiaries consulted - disaggregated by gender and ethnicity – who report their feedback has been reflected in the 0.00 70.00 Project’s activities and outputs (Percentage) Project preparation facility for preparing eligible PPP projects designed (Yes/No) No Yes IO Table SPACE Page 30 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection The standardized indicator assesses the quality of the WBG regulatory frameworks for Benchmarkin PPP project preparation in g Panama, benchmarking Infrastructur Data collected by the them with internationally e PIU and verified during World Bank Benchmarking Infrastructure Annual PIU at MOP recognized good practices. Development monitoring carried out Development score for PPP preparation The evaluation result is an for PPPs by Bank´s staff index up to 100. The target (https://bpp. is to equal to world average worldbank.or (44) from the current g/) Panama indicator. Number of PPP Projects prepared by MOP that completed their feasibility level following the developed Guidelines (that Ente Rector PPP projects approved at the feasibility are gender-responsive and Web Portal Annual Project progress report PIU at MOP stage of preparation following standards consider climate change) (Ente Rector defined in the new operational Guidelines and were approved by the Resolutions) Ente Rector (Governing body of the PPP regime). This indicator will capture the implementation of a PPP Agenda in Panama, by Page 31 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) strengthening the MOP and other relevant entities involved in the PPP agenda, more projects are expected to be prepared and approved following the PPP scheme. This indicator will reflect that Panama has an active PPP Program. Number of PPP Projects tendered by MOP following the regulated procurement process. This indicator will capture the implementation of a PPP Agenda in Panama, by PPP Registry strengthening the MOP and Annual (administrate Project progress report PIU at MOP PPP projects tendered other relevant entities d by SNAPP) involved in the PPP agenda, more projects are expected to be tendered following the PPP scheme. This indicator will reflect that Panama has an active PPP Program. Number of institutions with Monitoring a specialized PPP group system of PIU Project progress report Institutions with a specialized PPP group operationalized and Annual and World verified by the WB PIU M&E team at MOP operationalized and strengthened strengthened: with Bank staff team organizational structure field visits. approved, managerial team Page 32 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) appointed, and operational framework in place (procedures, management tools, equipment). ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection The indicator reports the development of institutional reform proposals for Monitoring Institutional reform proposals for improving institutional system of PIU improving planning capacity for planning capacity for Annual and World Project progress report PIU at MOP infrastructure and service provision infrastructure and service Bank staff developed that are gender-responsive provision (Diagnosis, reform field visits. and consider climate change proposal and implementation plan) that are gender-responsive and consider climate change. The indicator reports if Intermediate infrastructure master plans, draft reports including strategies for and final Infrastructure master plans, including developing and funding document strategies for developing and funding infrastructure and service Annual elaborated Project progress report PIU at MOP infrastructure and service provision that provision that increases by the increases climate change resilience with climate change resilience consultancy private participation developed with private participation, firm and was pursued and delivered approved to MOP or other entity involved in the PPP agenda. Page 33 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) Number of staff (from MOP Monitoring or other entities involved in system of PIU Staff trained in planning instruments for the PPP agenda) trained in Annual and World Project progress report PIU at MOP infrastructure and service provision using planning instruments Bank staff for infrastructure and field visits. service provision The indicator reports the completion of a proposal to Intermediate improve regulations that draft reports include new operational and final Proposal for improved regulations that Guidelines for infrastructure document facilitate infrastructure development and development and service Annual elaborated Project progress report PIU at MOP service provision aligned with PPP law provision aligned with PPP by the completed, including gender, climate law and E&S safeguards, consultancy change and citizen engagement aspects including gender firm and responsiveness, climate approved change and citizen engagement considerations. Number of staff trained in Monitoring preparing and executing PPP system of PIU Staff trained in preparing and executing projects in line with the new Annual and World Project progress report PIU at MOP PPP projects in line with the new operational Guidelines that Bank staff operational Guidelines are gender-responsive and field visits. consider E&S best practices, including climate change. Monitoring system of PIU This indicator will track the Annual and World Project progress report PIU at MOP Of which women number of women trained. Bank staff field visits. Page 34 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) The Project is financing technical assistance to understand and address the recruitment, retention and promotion barriers that women face in the transport Monitoring PIU at MOP; PPP units in sector in order to provide system of PIU Share of women promoted or hired in PPP the relevant institutions equal job opportunities for Annual and World Project progress report units of total hiring based on equal involved in the PPP women to access jobs in PPP Bank staff requirements for skills and competences agenda. units. This indicator field visits. measures the number of women promoted or hired in PPP units based on requirements for skills and competences that are equal for women and men. Share of beneficiaries consulted - disaggregated by gender and ethnicity (Percentage) – who report satisfaction with the Project’s Monitoring Share of beneficiaries consulted - consultation/communicatio system of PIU disaggregated by gender and ethnicity – n mechanisms and believe Annual and World Project progress report PIU at MOP who report their feedback has been their feedback has been Bank staff reflected in the Project’s activities and considered by the PIU and field visits. outputs reflected in the Project’s activities and outputs. Beneficiaries refers to citizens and relevant stakeholders consulted during the implementation Page 35 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) of Project activities. Consultation processes will be required for the development of relevant Project activities, development of policies, guidelines and operational procedures related to PPPs, development of an Environmental and Social Management System (ESMS), and developing national strategies and plans for the Transport Sector. Consultation outcomes will inform the development of Project activities and beneficiaries will be provided with a satisfaction survey to measure if the consultation and communication mechanisms used were appropriate and if they are satisfied with the inclusion of their feedback in the implementation of the relevant Project activities. The indicator reports the Intermediate Project preparation facility for preparing design of a facility for Annual draft reports Project progress report PIU at MOP eligible PPP projects designed financing the preparation of and final eligible PPP projects that document Page 36 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) enhance private sector elaborated participation in managing by the and delivering infrastructure consultancy and service provision firm and approved ME IO Table SPACE Page 37 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: Panama Support to Panama PPP Program Development for Recovery Financial Management 1. Project Implementation will be undertaken by the MOP’s Program Coordination Office (PCO), that will exert the functions of the PIU. Those functions will include: (i) implementing the activities in compliance with World Bank fiduciary requirements, (ii) managing the Loan’s disbursement requests, and (iii) Project coordination, monitoring and handling the Project’s overall administration. MOP will employ the PCO to provide fiduciary services for the Project as it does for other MDB-financed projects. E&S capacity will be assigned/deputized from MOP's existing capacity to the Project, as per manpower requirements to support work demand during the Project lifecycle. The PIU will be also responsible for administrative and budgeting activities as set forth in the Project Operational Manual (POM) and in the ESCP. 2. Technical support to the PIU will be provided by MOP’s PPP Unit, who will coordinate the activities to be financed under the Project’s scope with SNAPP and other relevant GoP entities involved in the PPP agenda and participating in the Project. SNAPP will ensure that the use of the Project’s resources is aligned with the needs of the PPP agenda. SNAPP will continue providing technical support to CPEs involved in the PPP agenda and monitoring PPP projects execution and the implementation of institutional strengthening plans. Figure 1.1 shows all the parties involved and their main functions regarding project implementation: Figure 1.1: Implementation Arrangements 3. The entities involved in the PPP agenda will be responsible for overseeing the implementation of the consulting services and for the fulfillment of the non-consulting activities as set forth in each of services’ ToRs . The PIU will be Page 37 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) responsible for awarding the contracts under the Project and processing the payment requests as set forth in the POM. The PIU will be also responsible for budget programming and execution, with the support of the MOP’s PPP Unit and other relevant GoP entities involved in the PPP program and participating in the Project. Procurement 4. Procurement for the Project will be carried out in accordance with the World Bank’s Procurement Regulations for IPF Borrowers for Goods, Works, Non-Consulting and Consulting Services, dated July 1, 2016 (revised in November 2017, August 2018 and November 2020). The Project will be subject to the World Bank’s Anticorruption Guidelines, dated July 1, 2016. 5. A Project Procurement Strategy for Development (“PPSD”) agreed between the MOP and World Bank on August 29, 2022, describes how procurement in this operation will support the PDO and deliver value for money under a risk- based approach. The PPSD provides adequate supporting market analysis for the selection methods detailed in the Procurement Plan. Mandatory Procurement Prior Review Thresholds detailed in Annex I of the Bank’s Procurement Procedure are observed. All procurement procedures, including roles and responsibilities of different units, will be defined within the POM. In accordance with the Procurement Regulations, the Bank’s Systematic Tracking and Exchanges in Procurement (STEP) system will be used to prepare, clear and update Procurement Plans and conduct all procurement transactions for the Project. The initial Procurement Plan prepared by MOP in accordance with the PPSD was agreed with the World Bank on August 29, 2022. 6. The Bank performed a procurement capacity assessment on June 4, 2022, to determine the necessary procurement arrangements for adequate execution. The assessment focused on MOP’s resources for executing procurement activities, such as staffing structure, procurement record system, internal controls, roles and responsibilities. It was determined that the PIU has the necessary structure, with the assignment of a procurement specialist of the MOP to the executing unit for the duration of the Project. Additionally, the executing agency team working on project preparation participated in procurement training sessions delivered by the World Bank to enhance their knowledge and capacity in World Bank-specific procurement. In addition to prior review supervision to be carried out by the World Bank, the capacity assessment of the PIU recommended annual post review of processes to be conducted by the World Bank. 7. The key issues and risks concerning procurement for project implementation include: (i) the specificity of consulting services to be procured and the specialized market to provide such services; and (ii) the lack of specific experience in executing World Bank projects. The mitigation measures which have been agreed are: (i) to carry out specific market studies for the specific consulting services and an outreach strategy to promote the project activities to consulting firms; and (ii) continued procurement training and support to ensure adequate project execution. 8. Additionally, the following actions are recommended to reduce the procurement related risk for the identified substantial risk in institutional capacity and facilitate the project Implementation: (i) the operational manual must include the roles and responsibilities in providing inputs for procurement processes that will require coordination across different GoP agencies, and within MOP; and (ii) the Procurement Plan must be presented and explained to Contraloria authorities to obtain timely decision on procurement processes. 9. The MOP has prepared a Procurement Plan for the activities expected to be carried out during the first 18 months. The rest of the activities will be added to the Procurement Plan once they are defined by the technical areas Page 38 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) and any updates on the PPSD will be reflected during project implementation. The World Bank’s Standard Procurement Documents will govern the procurement of World Bank-financed Open International Competitive Procurement. For procurement involving National Open Competitive Procurement, the Borrower may use documents agreed with the World Bank. 10. Based on the above, the procurement risk is Moderate. Implementation Support Plan 11. The strategy for implementation support has been determined based on the risks to achieving the PDO. All risks are rated moderate to low, except institutional capacity for implementation and sustainability which is substantial after mitigation. To mitigate this risk, specific resources of the Project will be dedicated to support project implementation. Moreover, the World Bank will conduct regular missions, videoconferences, and periodic fiduciary compliance reviews. A Mid Term Review (MTR) will be conducted after approximately 24 months of implementation to review performance in depth and make any adjustments necessary. In addition to the MTR, the team will conduct yearly reviews of the Project to assess whether any adjustments are needed. 12. It is projected that a total of 15 implementation support missions will be required over the life of the Project. Beyond the startup of the Project, these are intended to take place every four months. Key areas of focus for the first year of project implementation include: (a) Monitoring the procurement for some of the key studies to be financed by the Project as well as specific technical assistance activities. (b) Assuring that the PIU is fully staffed and equipped for project implementation. (c) Conducting training to assure that newly recruited staff are knowledgeable on World Bank fiduciary and ESF requirements. (d) Coordinating with the main partners (IDB, CABEI, CAF) to ensure synergies with other planned and ongoing projects. 13. The estimated skill mix and resource needs are shown in Table 1.1 below. Table 1.1: Implementation Support Skill Needs Number of Number of Comments staff weeks trips (for the duration of the Project) Task Team Leader (TTL) 50 15 4 implementation support missions during the first year; 3 the following years + technical visits to solve bottlenecks as needed. Co-TTL 50 15 4 implementation support missions during the first year; 3 the following years + technical visits to solve bottlenecks as needed. PPP Specialist 40 15 4 implementation support missions during the first Page 39 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) Skill Needs Number of Number of Comments staff weeks trips (for the duration of the Project) year; 3 the following years + technical visits to solve bottlenecks as needed Transport Economist 25 10 Twice a year missions, routine support as needed. Procurement Specialist 40 Based in Twice a year missions, routine support as needed. country office PPP lawyer 25 8 Twice a year missions, routine support as needed. Financial Management 30 Based in Twice a year missions, routine support as needed. country office Gender Specialist 10 5 Once a year missions, routine support as needed. Environmental Specialist 10 5 Once a year missions, routine support as needed. Social Development 10 5 Once a year missions, routine support as needed. Specialist Program Assistant 25 Based in Support as needed for mission planning, etc. country office Legal 2 0 Staff weeks, as needed Disbursement 2 0 Staff weeks, as needed Table 1.2: Project Partners Name Institutions Role MOP Ministry of Project Counterpart, overall responsible for project implementation, in Public Work compliance with agreements spelled out in the Loan Agreement coordinating the GoP’s support for the Project. PIU MOP (PCO) Responsible for project execution SNAPP National Oversight of overall PPP Program implementation, advice and guidance Secretariat of on activities to be conceived and supported by the Project PPP MEF Ministry of Key partner in the development of the PPP Program, close coordination Finance on specific project activities such as the structuring of a revolving fund Other beneficiaries Other entities Technical support during ToR preparation and procurement processes, involved in the and product approvals for payment submission. PPP agenda to be identified during Project Page 40 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) Name Institutions Role life (e.g., MEF, CGR, Ministry of Government) World Bank and World Bank, Ensure coordination so that financed World Bank programs other MDBs IDB, CABEI, CAF complement one another in terms of intervention and support to the broad agenda. Associations and Various, Consultations, establishment of an institutional dialogue with public Private sector including authorities. partners national and international Private Sector representative, Chambers of Commerce, Associations and industries, Women Associations, etc. Page 41 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) ANNEX 2: Financial Management Assessment (FMA) COUNTRY: Panama Support to Panama PPP Program Development for Recovery 1. The Bank carried out an FMA54 to evaluate the adequacy of FM arrangements proposed for the Project. The objective of the assessment was to determine whether the implementing agency has acceptable FM and disbursement arrangements in place to adequately control, manage, account for and report on the use of the Loan. 2. The scope of the assessment included a review of: (i) proposed FM arrangements for the Project; (ii) organizational and staffing structure; (iii) flow of funds; (iv) internal control mechanisms; (v) accounting and financial reporting (vi) Financial Management Information systems; and (vii) a review of the schedule and scope of the external audit arrangements. The assessment was performed by Álvaro Fernández (Senior Financial Management Specialist). Financial Management Assessment Summary and Conclusion 3. The FM arrangements for the Project will benefit from the experience of the existing PCO under the MOP, during the implementation of donor-funded projects, mainly with the IDB, CAF and CABEI. 4. The Project will be implemented by the PCO with full responsibility for all project FM-related tasks, including budgeting, accounting, financial reporting and disbursements. The PCO has acceptable institutional capacity and long- standing experience in implementing donor-funded projects. Therefore, it was determined that the FM arrangements in place for this Project are acceptable to the World Bank since: (i) the PCO has appropriate accounting arrangements to account for the Project’s transactions; (ii) capacity to produce adequate Financial Reports; (iii) safeguard the Project’s assets; and (iv) acceptable auditing arrangements. Risks 5. The Project will be implemented throughout various eligible entities within the GoP, which could present potential FM risks on mismanagement of resources and time-consuming processes of consolidation of financial information. To mitigate these risks, it is foreseen to have only one PIU centralized at the MOP to manage all the resources of the Project, ensuring the active participation of the relevant GoP entities involved in the PPA agenda through mechanisms of consultation and approval of results. The residual FM risk after mitigation measures is deemed moderate due to the reliability of the mitigation measures to lower the likelihood of occurrence of the risks and the impact on the achievement of the PDO. 6. The Project’s FM arrangements will benefit from the experience gained by the POC implementing donor funded operations with IDB, CAF and CABEI. The Project FM functions will be implemented by experienced technical and financial staff based on enhanced FM arrangements and supported by one additional Finance Specialist and Contract Specialist to be financed by this operation. 54In accordance with World Bank Directive on Investment Project Financing and the FM Manual for World Bank-Financed Investment Operations (effective March 1, 2010 and revised September 7, 2021). Page 42 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) Overall Financial Management Arrangements Organization and Staffing 7. The PCO will have full responsibility for all project FM-related tasks, including budgeting, accounting, financial reporting, and disbursements. Its current staff is capable of undertaking the project FM function. Due to its current obligations implementing other projects, the FM capacity of the PCO could be stretched. Hence, during the assessment, the PCO expressed its need for one Finance Specialist and one Contracts Specialist to be financed with the loan proceeds, which was deemed acceptable, especially for the administration of contracts with the entities involved in the PPP agenda and participating in the Project (SNAPP, CGR, MEF, etc.) Budgeting 8. The project annual budget will be under MOP's budget, and its formalization will follow the procedures of MEF and the Comptroller General of the Republic (CGR). The allocation of the Project’s budget into MOP’s institutional budget will need the concurrence of MEF and approval of the National Congress. The project transactions registration process will be based on the General Accounting Manual and Institutional Chart of Accounts, issued by the CGR. Accounting 9. The GoP´s financial management information system: ISTMO will be used for recording project transactions and produce the required financial information. ITSMO integrates the accounting, budgeting and treasury functions under a single platform based on Systems Applications and Products (SAP), which is a widely used Enterprise Resource Planning (ERP) software and is reliable to produce project financial reporting. Internal Controls 14. The Project's internal control system will be outlined in the POM, conforming to procedures and policies issued by the CGR. Main internal control procedures will comprise the following: segregation of FM functions, management and control of assets, monitoring and control of Agreements with eligible entities, adequate control of payments, disbursements and flow of funds. The POM will be prepared by the PCO and will be submitted for World Bank No Objection. As per the CGR policies, expenses equal to US$200,000 or less will need the endorsement of the Supervisory Office of the CGR in MOP, while expenses over this threshold will need the endorsement of the CGR. Funds Flow and Disbursements Arrangements 10. The main disbursement method to be applied for the Project will be the Advance method, in which funds will flow to a segregated Designated Account in US dollars following the Treasury Single Account of Panama, based on six- month forecasts. The World Bank will also use the disbursement methods of reimbursement and direct payments as necessary and according to authorized instructions from the borrower. The disbursement methods in terms of supporting documentation requirements, frequency and size will be described in the Disbursement and Financial Information Letter (DFIL). 11. The flow of funds is presented in the following diagram, where the solid lines represent the flow of funds, and the dotted lines represent the flow of information: Page 43 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) Financial Reporting 12. The GoP’s financial management information system (ISTMO) will be used in the preparation of the financial reports of the Project. The content and format of the Financial Reports will be included in the POM. The PCO will submit to the World Bank semi-annual Interim Unaudited Financial Reports (IFRs) with consolidated information, no later than 30 days after the end of each calendar semester containing: (i) the sources and uses of funds, reconciling items, and cash balances at the beginning and end of the reporting period, with expenditures classified by Project Component and Category; and (ii) a statement of uses of funds reporting the current semester and the accumulated operations against ongoing plans, as well as footnotes explaining any important variances. 13. The Project will also prepare yearly Financial Statements in form and format described in the POM. The Financial Statements of the Project will be subject to audit as it is described below. Auditing 14. The Project will be subject to annual audits under terms and conditions acceptable to the World Bank. The audit Terms of Reference will be prepared and submitted for the No Objection of the World Bank before the hiring process begins. The audit firm shall be selected from the list provided by the World Bank of eligible audit firms for Panama. The audit reports will be submitted to the World Bank no later than 6 months after the finalization of each fiscal year. 15. According to the World Bank’s policy on access to information, audited financial statements shall be made public by the GoP. Page 44 of 45 The World Bank Support to Panama PPP Program Development for Recovery (P174535) Supervision Plan 16. FM supervision and implementation support will include on-site and off-site supervision. If circumstances permit, on-site visits will be carried out at least once per year during the implementation of the Project. In case of lack of physical access to project facilities, once implementation begins, virtual FM implementation support and supervision will be conducted using IT tools. Off-site implementation support will comprise desk reviews of IFRs and the audited financial statements, continuous monitoring of funds flow and budget execution progress. Page 45 of 45