The World Bank Pacific Aviation Safety Office Reform (P145057) REPORT NO.: RES39732 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PACIFIC AVIATION SAFETY OFFICE REFORM PROJECT APPROVED ON SEPTEMBER 30, 2013 TO PACIFIC AVIATION SAFETY OFFICE TRANSPORT EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Michel Kerf Regional Director: Ranjit J. Lamech Practice Manager/Manager: Almud Weitz Task Team Leader(s): Noroarisoa Rabefaniraka, Dung Anh Hoang The World Bank Pacific Aviation Safety Office Reform (P145057) ABBREVIATIONS AND ACRONYMS IA Implementing Agency ICAO International Civil Aviation Organization ICT Information and Communication Technology IDA International Development Association PAIP Pacific Aviation Investment Program PASO Pacific Aviation Safety Office PDO Project Development Objective PICASST Pacific Islands Civil Aviation Safety and Security Treaty PIDP Pacific Inspector Development Program Multi-Donor Trust Fund for the Pacific Region Infrastructure PRIF Facility RPAS Remotely Piloted Aircraft Systems SDR Special Drawing Rights SIRAP Solomon Islands Roads and Aviation Project TAL Tonga Airports Ltd. TFSU Technical and Fiduciary Services Unit TvAIP Tuvalu Aviation Investment Program US$ United States Dollars USAP Universal Security Audit Program USOAP Universal Safety Oversight Audit Program VSAT Very Small Aperture Terminal i The World Bank Pacific Aviation Safety Office Reform (P145057) BASIC DATA Product Information Project ID Financing Instrument P145057 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 30-Sep-2013 31-Dec-2021 Organizations Borrower Responsible Agency Pacific Aviation Safety Office Pacific Aviation Safety Office Project Development Objective (PDO) Original PDO To ensure effective regional delivery of aviation safety and security oversight in Pacific Island Countries by strengthening thePacific Aviation Safety Office’s technical and coordination capacity. Current PDO The project development objective is to strengthen the coordination capacity of the Pacific Aviation Safety Office to deliver regional aviation safety and security oversight, and technical and advisory services to the Pacific Island Countries. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-D3190 23-May-2018 09-Jul-2018 03-Sep-2018 31-Dec-2021 3.55 .82 2.61 IDA-H8830 30-Sep-2013 01-Nov-2013 12-Dec-2013 31-Dec-2021 2.15 2.17 0 TF-A3687 02-Feb-2017 02-Feb-2017 13-Feb-2017 31-Dec-2019 .95 .62 .33 ii The World Bank Pacific Aviation Safety Office Reform (P145057) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No iii The World Bank Pacific Aviation Safety Office Reform (P145057) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. This Project Paper seeks the approval of the Country Director for a Level 2 Restructuring of the Pacific Aviation Safety Office (PASO) Reform Project to: (i) extend the Pacific Region Infrastructure Facility (PRIF) grant TF-A3687 closing date by six months, from December 31, 2019 to June 30, 2020; and (ii) change the project’s institutional and implementation arrangements / support mechanism, without changing the Implementing Agency (IA), which remains PASO. 2. There are no changes to the Project Development Objective (PDO), and Project risk ratings. No additional safeguard policies will be triggered. No changes in the financial management arrangements are needed. The financial management arrangements and key internal controls have been implemented as agreed, and there are no outstanding Interim Unaudited Financial Reports (IFRs). A. Regional Program and Project Background 3. In December 2011, the International Development Association (IDA) approved the Pacific Aviation Investment Program (PAIP), a regional, horizontal Adaptable Program Loan that consists of a series of projects designed to ensure that critical aviation infrastructure meets operational safety requirements and to strengthen regulatory compliance of international air transport of participating countries in the region. Major elements of the now US$277.11 million program focus on the upgrading of airport infrastructure and aeronautical equipment, and the strengthening of policy and regulatory capacity. Phase I of PAIP included projects in Kiribati, Tonga and Tuvalu. Phase 2 and Phase 3 included Samoa in April 2014, and Vanuatu in March 2015, respectively. Phase 4 included Solomon Islands in March 2019. 4. PAIP also identified a need to strengthen international safety regulatory compliance and PASO was recognized as a PAIP beneficiary of regional IDA funding during Phase 1.1 5. The original grant for the PASO Reform Project amounting US$2.15 million was approved on September 30, 2013. A Level 1 restructuring of the IDA grant was approved on January 5, 2017, which revised the PDO and included a new project component ‘Supporting Regional Aviation Infrastructure’. Grant funding from the PRIF for PASO in the amount of US$0.95 million was agreed between IDA (as administrator of grant funds for the PRIF) and PASO on February 2, 2017. The PRIF grant constituted the first Additional Financing. A second Additional Financing of US$3.55 million equivalent from the regional IDA grant envelope and a three-year closing date extension of the IDA Grant to December 31, 2021 was approved on May 23, 2018 to further support the reform agenda. 6. The initial Project’s Development Objective (PDO) was “to ensure effective regional delivery of aviation safety and security oversight in Pacific Island Countries by strengthening the Pacific Aviation Safety Office’s technical and coordination capacity.” The revised PDO after the Level 1 restructuring is “to strengthen the coordination capacity of 1 The five countries implementing PAIP have been supported with grant funding from the Pacific Region Infrastructure Facility (PRIF) to purchase regulatory oversight and advisory services from PASO as the regional entity responsible for fulfilling inspection and certification requirements for international aviation. These funds have helped to ensure the continuation of regional aviation safety and security oversight in the respective Member States, and was also intended to improve PASO’s cash flow. Additionally, the PRIF resources were made available to support the preparation of a new PASO business plan (2013) and facilitated the implementation of restructuring measures agreed to under the IDA-financed PASO Reform Project. PRIF resources amounting to approximately US$3.55 million have been committed, directly or indirectly, to the PASO reform process. 2 The World Bank Pacific Aviation Safety Office Reform (P145057) the Pacific Aviation Safety Office to deliver regional aviation safety and security oversight, and technical and advisory services to the Pacific Island Countries.” B. Summary of Project Status 7. The PRIF Grant is in its last year of a three-year implementation period. The VSAT equipment is now installed in Niue and Cook Islands, with lower costs than initially expected thanks to a successful competitive procurement process. 8. The PASO Reform project is in its sixth year of an eight-year implementation period. Implementation progress has been rated Moderately Satisfactory or better throughout. The project has been instrumental in providing uninterrupted technical assistance in regional aviation safety and security oversight to PASO’s respective Member States. Consequently, considerable progress has been made towards achieving the PDO. With the successful delivery of designed project activities (evidence listed in below), PASO has increased its support to its Member States and has strengthened its coordination capacity: all key positions in PASO including general manager, operations manager and corporate services manager were successfully filled. As of 30 November 2019, PASO’s reported consolidated operating income2 for the year to date stood at around US$2.69m, against operating expenses of US$2.63m. 9. Despite some delays, project activities are progressing satisfactorily since the Additional IDA Regional Grant became effective on September 3, 2018. As of December 6, 2019, project’s overall disbursement is US$3.61 million, which represents 54.29 percent of the project’s total financing (original IDA grant, the PRIF grant and second IDA grant additional financing). 10. The following consultants have been recruited through the project: (i) PASONet Project Manager; (ii) Marketing and Communications consultant; (iii) Legal Advisor; (iv) Regulatory Advisor; (v) Universal Safety Oversight Audit Program (USOAP)/ Universal Security Audit Program (USAP) Advisor; and (vi) Remotely Piloted Aircraft System (RPAS) regulations expert. The Strategic Planning consultant is the only consultant yet to be recruited to work with PASO Management and the PASO Council to take stock of the PASO existing Strategic Plan and to facilitate discussions on priorities for the 2023 Strategic Plan. Since the current Strategic Plan is valid until end of 2022, this procurement will be undertaken in mid- 2021. 11. All equipment is now delivered and installed: PASO’s new IT equipment (laptops, server, phones, printers, etc.) has been set up and is working well; VSAT equipment and antennas in Cook Islands and Niue are installed and PASO is currently in the process of clearing invoices for all VSAT-related contracts. 12. All the training programs are progressing well: the Pacific Inspector Development Program (PIDP), Civil Aviation Authorities Strengthening Performance (CAASP), as well as the PASO Staff and Council Members trainings. C. Project progress by Component. Component 1. Transitional Management and Project Management Support 2 PASO include proceeds from the IDA and PRIF funds under these figures. 3 The World Bank Pacific Aviation Safety Office Reform (P145057) 13. All planned activities are underway or completed. The key consultancies (Legal Advisor, Marketing and Communications consultant, PASONet Project Manager) are underway. The project supported the participation of PASO representatives in the workshop organized by the International Civil Aviation Organization (ICAO) in September 2019 in Fiji on the results of the Pacific Aviation Needs Study; and it will also support the organization of the PASO Ministers of Civil Aviation meeting scheduled for March 2020. As requested by the World Bank, PASO fine-tuned the description of the Stakeholder and Strategic Engagements’ activities to clearly define the beneficiaries of the intended support, and further separate PASO management’s travel fees (under Strategic Engagements) from PASO Member States’ representatives travel fees (under Stakeholder Engagements). Component 2. Establishment of a pool of Regional Aviation Inspectors 14. The pool of inspectors is operational. This is an important outcome as it has increased participation of Pacific Islands Country inspectors in the pool of Regional Inspectors. A Regulatory Advisor was recruited on May 2, 2019, to develop and support the implementation of training packages for inspectors, as well as to provide advice to PASO and States over a two-year period. The consultancy is proceeding well, and the first set of Operational manuals will be presented during the PASO Inspectors Workshop at the December 2019 Project Steering Committee meeting. 15. The USOAP/USAP Advisor has been recruited to work directly with Member States to specifically help them improve their ICAO “Effective Implementation” scores by supporting them with their USOAP/USAP audits and State Letters to address certain Protocol Questions (PQs)3 findings. He delivered his inception report in mid-December 2019, and his reports includes updated evaluation of Vanuatu and Samoa current compliance rates regarding their respective on- going PAIP projects. His report noted progress in most PAIP participating countries. 16. Training activities under the CAASP and the PIDP are being implemented at a good pace. The first CAASP training course was launched in August 2019, and two further courses were offered to Member States in October and November 2019. Three new Pacific Inspectors will be recommended to be admitted to the PIDP program at the upcoming Council meeting scheduled for March 2020. In addition, four new council members have been offered training at the NZ Institute of Directors, ahead of the December 2019 Council meeting. This is an important measure to improve the overall governance of PASO. Component 3. Quality Management 17. New IT equipment has been delivered in August and set up by PASO’s IT Service Provider in September 2019. An IT Project Manager mobilized in Vanuatu to support the larger platform development and rollout of longer term PASONet IT solution through the definition of the specifications of the IT solutions to be proposed at the upcoming PASO Reform Project Steering Committee meeting. Component 4. Supporting Regional Aviation Infrastructure 18. VSAT equipment was delivered to Niue and Cook Islands and was installed and commissioned respectively on November 4 and 21, 2019. This means that the PAIP-supported network now increased connectivity among participating States enables secure and reliable communications across airports in Cook Islands, Kiribati, Niue, Samoa, Tonga, Tuvalu and Samoa. Furthermore, the VSAT network can serve PASO’s needs for Information Communication Technology (ICT) connectivity across member states. 3 Protocol Questions (PQs) are the primary tool used in the ICAO Continuous Monitoring Approach for assessing the effective implementation of the critical elements of a State safety oversight system. 4 The World Bank Pacific Aviation Safety Office Reform (P145057) 19. To help PASO member countries address the safety risks associated with ‘drones’, the RPAS consulting firm was appointed in August 2019 and the team mobilized in mid-September for one year. The Consultancy’s deliverable (“Options Paper for PASO Council”) will be presented and discussed at the upcoming Council meeting in December 2019. II. DESCRIPTION OF PROPOSED CHANGES Rationale for Restructuring 20. The project restructuring is in response to two requests received from PASO, on December 11, 2019, and December 12, 2019, to respectively (i) restructure the PASO Reform Project and amend the Project’s documents as required to reflect revised implementation arrangements, and (ii) extend the PRIF grant TF-A3687 closing date by six months, from December 31, 2019 to June 30, 2020. Rationale for the PRIF grant closing date extension 21. Thanks to a competitive bidding process that resulted in lower-than-expected costs for the VSAT equipment, and expert contract management provided by Technical and Fiduciary Services Unit (TFSU) supporting PASO, costs savings of just under US$300,000 were achieved on VSAT activities. As previously indicated, while all VSAT equipment and antenna are now delivered and installed in Cook Islands and Niue, and PASO is in the process of clearing invoices for all VSAT-related contracts, PASO is currently weighing different options to use these savings. The Bank is expecting to receive a proposal from PASO in relation to the use of those funds by end January 2020, as PASO needs more time to determine how to best spend these savings. 22. Since the PRIF Trust Fund closes in 2020, the PRIF grant TF-A3687 can be extended up to June 30, 2020 only. Rationale for the changes in implementing arrangements. 23. The PAIP program established the ‘Technical and Fiduciary Services Unit’ (TFSU) as a central project management unit to support the individual countries implementing the PAIP program. TFSU is providing project management, technical and fiduciary support services to the PASO Reform Project. Its structure is shown in Figure 1 . Each PAIP country (and PASO) had their own project support team which implement their respective projects with support from TFSU. 5 The World Bank Pacific Aviation Safety Office Reform (P145057) Figure 1. Structure of Technical and Fiduciary Service Unit TAL Technical Program Director Support (FT, remote) Program Manager (FT, HQ) TAIP Project Manager Lead Procurement Finance Manager Specialist Contracts Manager Team Assistant Specialist (FT, HQ) (FT, HQ) (FT, HQ) Consultants (PT, remote) PASO Project Snr Project Procurement Contracts Infrastructure / Coordinator Accountant Specialist Administrator Construction (FT, HQ) (FT, HQ) (FT, HQ) Technical Specialist Periodic Procurement Specialist ADS-B Technical Specialist (PT, remote) TvAIP Project Procurement Manager Officer (FT, HQ) Policy/Regulatory Contracts/Finance Administrative Manager Assistant Procurement Officer (FT, HQ) Others programmed as necessary (safeguards, procurement, technical needs) SAIP Project KAIP Project Manager Manager KFSU Manager Project Administrative Snr Project Accountant Team Assistant Assistant Officer Finance Procurement 24. PASO is and remains the Grant recipient and IA. Likewise, the overall PASO oversight, management, and office support institutional arrangements are listed below and remain the same throughout the project cycle (i) PASO Council continues to govern and provide oversight to PASO. The Council comprises representatives from each of the 13 PASO Member Countries, including the three non-voting states of Fiji, Australia and New Zealand. Representatives are often either a director of civil aviation or a ministerial level representative, and only signatories to the Pacific Islands Civil Aviation Safety and Security Treaty (PICASST) hold voting power on Council decisions. (ii) PASO Steering Committee, established by the PASO Council remains responsible for project oversight and guidance. (iii) PASO Manager/Senior Coordinator. The PASO Manager is reporting to the Council. (iv) PASO Office Support. As per the Vanuatu Hosting Agreement, office management, financial management and administrative support functions are provided by Vanuatu Nationals. 25. However, while TFSU is currently hosted by Tonga Airports Limited (TAL) and provide support to PASO Reform Project in accordance with the Service Agreement between TAL and PASO, TAL will stop hosting TFSU when the Tonga Aviation Investment Project is closed on December 31, 2019. Consequently, the provision of project and contract management, technical and fiduciary support for the PASO Reform Project will be affected unless a new implementation arrangement is established. 6 The World Bank Pacific Aviation Safety Office Reform (P145057) Alternative Considered 26. Regarding the changes in implementation arrangements, the project investigated whether it would be possible to replicate current arrangements with TFSU hosted by another agency within a PAIP Country or by PASO. The Government of Solomon Islands was willing to host TFSU in the Ministry of Civil Aviation but this scenario was eventually discarded as it would have required state-level agreements between Solomon Islands and other PAIP countries (namely Tuvalu). The same issue of a new treaty to replace Service Agreements would have been raised if PASO needed to host the TFSU. Hence the proposed implementation arrangements below. Proposed PRIF Grant closing date extension 27. The current PRIF Grant closing date is December 31, 2019, and will be extended up to June 30, 2020, which will bring the total extension to 18 months meaning the grant will be 3 years and 5 months old when it closes. Proposed Project Implementation Arrangements 28. The remaining three PAIP participants will adopt new arrangements for the TFSU services. Rather than having the TFSU recruited through a single entity (i.e. TAL under the earlier arrangements), it was ultimately decided to have the remaining PAIP Recipients that need continued technical and fiduciary support (i.e. PASO, Solomon Islands and Tuvalu) directly recruit individual consultants, likely to be from the existing TFSU staff, to provide this support. 29. The core support team would consist of three consultants (PAIP Program Manager, PAIP Procurement Specialist, and PAIP Financial Manager). They will be engaged by PASO, as part of its existing project support team4. Each PAIP Recipient will be directly in charge of the management and payment of their respective consultants’ time and costs. 30. Technical Specialists may be engaged as necessary, on Indefinite Delivery Contracts (IDC) to provide on-call delivery of services. As with the core ICs, PASO, the Solomon Islands and Tuvalu will have individual contracts for each consultant. There are no retainer costs, and relevant consultants will be remunerated for actual work completed in accordance with Task Orders approved by each IA. Taxation 31. Core consultant costs have been prepared on the basis of being inclusive of local tax requirements as at 1 December 2019 and are subject to amendment if these requirements are subsequently revised or updated, based on the relevant country’s taxation law. Support Costs: 32. From 1 January 2020, support to PASO will include the following: (a) Core Consultants – Consisting of the PAIP Program Manager, PAIP Finance Manager and PAIP Procurement Specialist 4 The recruitment may be through direct contracting if the incumbents are willing to continue in 2020, otherwise through competitive selection. 7 The World Bank Pacific Aviation Safety Office Reform (P145057) (b) IOC Allowance – This is a recommended budget allowance that PASO should set aside to cover the costs of approved travel, reimbursable expenses and associated costs for the Core Consultants relating to PASO or for shared costs than cannot be univocally attributed to one of the three remaining PAIP projects, such as attendance of Project Steering Committee meetings or similar regional expenses. (c) IDC Technical Pool – Consisting of selected technical expertise to be utilized by PASO on an on-call basis. Inputs will be determined and coordinated by the PAIP Program Manager in consultation with PASO. An estimated PAIP budget ceiling of USD 45,000 has been proposed to cover IDC inputs and approved travel and associated costs. 33. It is important to note that Items 2 and 3 are budget estimates based on anticipated workplan as at December 2019 and are dependent on usage by the remaining PAIP participants, including PASO. 34. The PASO Financing and Procurement Plans have been updated in the Systematic Tracking of Exchanges in Procurement (STEP) to reflect the above. 35. The tables below summarize the estimated costs for continued support to PASO under PAIP: Table 1. PASO Cost Estimate in USD Item Average Monthly Cost Total Annual Budget Core Individual Consultants $2,410 $28,920 IOC Allowance $1,250 $15,000 Technical Specialists $3,750 $45,000 Table 2. Core Consultant Input Level Ceiling for PASO in USD per year No. of Position Rate Contract Value Days PAIP Program Manager - PASO 20 $610 $12,200 PAIP Finance Manager - PASO 20 $254 $5,080 Procurement Specialist - PASO 13 $895 $11,635 Table 3. IDC Technical Pool Input Level Ceiling in USD No. of Position Rate Contract Value Days Aviation Specialist -- Legal 40 $700 $28,000 Economist & Financial Specialist 10 $1,000 $10,000 36. Table 3 above lists only two of the Technical Specialists to be engaged under PASO. Additional specialists may be added to support PASO activities as needed. 8 The World Bank Pacific Aviation Safety Office Reform (P145057) III. SUMMARY OF CHANGES Changed Not Changed Loan Closing Date(s) ✔ Legal Covenants ✔ Institutional Arrangements ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE 9 The World Bank Pacific Aviation Safety Office Reform (P145057) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-D3190 Effective 31-Dec-2021 IDA-H8830 Effective 31-Dec-2018 31-Dec-2021 TF-A3687 Effective 31-Dec-2018 31-Dec-2019 30-Jun-2020 30-Oct-2020 OPS_DETAILEDCHANGES_LEGCOV_TABLE LEGAL COVENANTS Loan/Credit/TF Description Status Action Finance Agreement :Schedule 2, Section I., B.1 | Description :The Recipient shall no later than 60 days after the Effectiveness Date amend the Cooperation IDA-H8830 Agreement with TFSU into a Service Agreement under Complied with Revised the terms and conditions acceptable to the Association to reflect the details of the Project. | Due Date :31-Mar- 2014 Until December 31, 2019, the Recipient shall maintain a Service Agreement with the TFSU under terms and Proposed C conditions acceptable to the Association to reflect the details of the Project.” Finance Agreement :Schedule 2, Section I., C.1 | Description :The Recipient shall no later than 60 days IDA-H8830 after the Effectiveness adopt the Program Operations Complied with No Change Manual with the provisions acceptable to the Bank. | Due Date :31-Mar-2014 The Recipient shall maintain the following personnel throughout the Project implementation period: (i) a program manager; (ii) a procurement specialist; and (iii) Partially complied IDA-H8830 New a financial manager; each with terms of reference and with qualifications satisfactory to the Association. Section . I.A.2 of Schedule 2 to the Financing Agreement. 10 The World Bank Pacific Aviation Safety Office Reform (P145057) 11