Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB1709 Project Name Leader Preparation Technical Assistance Project (under the SIDEM Facility) Region EUROPE AND CENTRAL ASIA Sector General agriculture, fishing and forestry sector (100%) Project ID P090884 Borrower(s) GOVERNMENT OF SLOVAKIA Implementing Agency Ministry of Agriculture Dobrovicova 12 Slovak Republic 81266 Tel: 421.2.5926.6275 Fax: 421.2.5926.6585 karol.zimmer@land.gov.sk Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 23, 2005 Estimated Date of Appraisal Authorization June 30, 2005 Estimated Date of Board Approval September 9, 2005 1. Key development issues and rationale for Bank involvement The Slovak Republic’s May 2004 entry into the European Union has granted the country and its rural sector almost full access to its allocation of EU structural funds. Of these funds, the most significant components are allocations under both the EU Common Agricultural Policy (CAP) and the EU's Regional Policy. In particular, the CAP-related allocations (from CAP Pillar 1 funding for market-related income support, and CAP Pillar 2 for funding of rural development programs and measures) appear to have made an immediate positive short-term impact on the country’s agricultural sector income. Compared with the period from 2000-2003, which saw average total losses in the sector of approximately EUR 20 million, 2004 saw a sector-wide profit of some EUR 15 million. While it is true that very favorable weather conditions (and hence very good crop and livestock yields) in 2004 contributed to this profitability, there is no question of the impact of the EU funds. Of the total EU CAP funds, two-thirds were allocated to direct payments and so-called “top-ups” (i.e., Complementary National Direct Payments, CNDP, topping-up direct income support payments from the CAP Pillar 2 allocations and the Slovak state budget), with only one-third allocated to interventions for “Less Favored Areas”. Although a partial adjustment need is being identified alongside with the country's full conversion to the reformed EU CAP, this allocation of support is appropriate in the immediate post-Accession period, in order to assist the larger farm operations to be competitive in the new circumstances. However, the reforms currently being implemented for EU CAP and the next EU structural operations programming period, from 2007-2013, imply a need for a re-orientation of MoA Page 2 strategy. Because of EU requirements, the amounts allocated for direct income support payments (Pillar 1) will be subject to a 'modulation', i.e. be subject to an annual decrease schedule and a reallocation to an increased rural development (Pillar 2) budget. ‘Rural development’ in this context implies a reduced importance on direct agricultural income support per se , and could include, inter alia , payments directed to three strategic "axes", namely (1) improvement of the competitiveness of farming and forestry, (2) environment and land management, and (3) improvement of the quality of life and diversification. Measures implemented under these priorities might include: agri-environment schemes; agro-forestry; environmental services; conservation; rural tourism; small-scale local infrastructure; and other local or regionally-based activities which allow rural inhabitants to diversify their income sources. Most importantly, the reform of the EU rural development policy also includes a mandatory implementation of so-called LEADER-type measures under each of the aforementioned axes—these, up to the current programming period, have been an optional element of support to community-based rural development initiatives. EU Leader+ Program . In addition to the existing mechanisms for delivering EU funds to rural regions, which will continue to be important, Slovakia has a planned allocation of between EUR 150-200 million for the EU Leader+ Program. Leader+ is the third phase of the EU Leader program umbrella, which is one of the primary interventions available to EU member states to provide funding for new approaches to sustainable community-based rural development. Leader seeks to “encourage and help rural actors to think about the longer-term potential of their area. It seeks to encourage the implementation of integrated, high-quality, original strategies for sustainable development designed to encourage experimenting with new ways of: enhancing the natural and cultural heritage; reinforcing the economic environment, in order to contribute to job creation; and improving the organizational abilities of their community.” Slovakia did not yet participate in Leader: Whereas no Leader-type instrument was available under the pre-accession schemes for accession countries, Slovakia also did not implement a transitional Leader-type instrument designed to particularly address the needs of the New Member States which acceded to the EU in 2004 The Leader program requires substantial implementation capacity on the national, regional, and local level -- unlike other EU rural development schemes it requires significant capacity (project identification, application, implementation, operation and supervision) on the regional and local (community) level. To- date, Slovak authorities have focused their efforts on ensuring the access to funding for agriculture. However for the next period, the MoA understands that Leader+ will be a key element for sustainably addressing development challenges in the rural areas and building a sustainable decentralized development capacity on regional and even community levels. For this to happen, there will need to be a very large investment in enhancing the capacity of local authorities and local stakeholders involved in rural development throughout the country. There are a number of organizations active in rural regions (including e.g. Rural Parliament, local governments, regional offices of the Agriculture Paying Agency, regional offices of the Agency for Rural Development, local agriculture chambers, NGOs, and others), but their efforts require a strengthened and target-oriented coordinated, and in any case, they need to build specific skills required to successfully access and operate rural development funding schemes under the Leader umbrella.. Page 3 In addition to capacity enhancement of the regions, there is an immediate need to develop the capacity of the central government authorities. At present, MoA is far short of the capacity to initiate and supervise either the ex ante evaluation , the project preparation for Leader+, or the subsequent implementation and monitoring. Further, many of these new activities are directly related to the responsibilities of other line ministries. This, for instance, applies to environment (e.g. one of the themes of the program relates to enhancing the value of sites of Community Interest selected under Natura 2000, which is a core responsibility of the Ministry of Environment (MoE)), there is also a compelling need for MoA strategies to be much better coordinated with the work of MoE and its policies. The new European Agricultural Fund for Rural Development (EAFRD) . For the 2007-2013 programming period, the EU will be re-orienting its rural development support policies, according to three ‘axes’ under a single new funding instrument, the European Agricultural Fund for Rural Development (EAFRD). While the immediate funding available under Leader+ should not be underestimated, EAFRD requirements are an even more important reason for Slovakia to enhance its capacities for this type of intervention. Under the EAFRD, each country program will need to contain a ‘Leader’ axis to finance the local groups and their activities under each of the 3 main axes. Although the current EU programming document is not explicit, it seems to imply that without a Leader-type capacity, country programs will not be able to be approved. In any case, 7% of the total funding for the next period is set aside for Leader-type interventions, so having this capacity is critical. Further, a 3% fraction of the total EU allocations will be withheld in a reserve, to be distributed in the final years of the programming period to those member states having most successfully implanted and operated Leader-type programs. Rationale for Bank Involvement . Since 2002, the World Bank has assisted Slovakia’s agricultural policy-makers to produce analyses of various aspects of the country’s agricultural performance. In early 2004, the Ministry of Agriculture requested the Bank to cooperate on a new assessment, to address constraints to economic growth in three regions which are underperforming. The goal at that time was to provide a tool to assist policy-makers to develop comprehensive integrated rural development strategies which are sensitive to regional differences. Although some internal Bank effort had been expended to begin such an assessment, since early 2005, it is clear that the MoA is now interested in investigating the possibilities of direct support from the Bank for improving their abilities to access Leader+. The Bank is particularly well- suited to this task for two principal reasons. First, Leader+ is very much a “community driven development” model, and the Bank has extensive, world-wide experience in this field. In particular, numerous projects have demonstrated the possibilities to channel substantial amounts of funding through local agencies, while avoiding corruption, and this is an important concern to the MoA. Second, Slovakia’s willingness to borrow for this purpose should provide EU policy-makers with the right signal of the country’s serious intentions to utilize the Leader+ funds. This seriousness is also indicated by MoA’s communication to the Bank that they have set aside from their own funds approximately SKK 100 million (approximately US $300,000) as counterpart financing. Page 4 This would likely be utilized for undertaking some pilot activities (note that as of May 16, 2005, this is not confirmed). 2. Proposed objective(s) The objective of the project is to assist the Ministry of Agriculture, the Ministry of Environment, their local agents, other local authorities, civil society groups, and communities, to develop their capacity to prepare for and implement the EU Leader axis in the period 2007-2013. 3. Preliminary description The project would have two components: Component 1: Creation of a Policy-Making Capacity Framework (EUR 0.5 million) The objective of this component would be to create the framework within which policy-making can be better coordinated between the two line Ministries (Agriculture, and Environment), associated national and local level institutions, and communities. The component would provide technical assistance to: (i) assess the current inter-institutional arrangements for policy-making and coordination of efforts to utilize EU funds, particularly where these funds target non-traditional agricultural methods; (ii) assess how the line ministries incorporate local/community issues into decision- making; (iii) develop a consistent and sustainable strategy for inter-institutional collaboration as recommendation of point (ii) outcome; and (iv) assess the status of local level structures – their capacities to implement Leader approach with clear recommendation what to do at the local level; (v) assess existing studies on rural areas in Slovak republic - defining the main needs of rural regions in Leader approach point of view ; (vi) make proposals for best suited co–financing system in Leader axis according to Slovak conditions, with specific possibilities of local municipalities involvement (survey); (vii) define a system of delegation of decision making power – level of centralization, in terms of Leader approach (in terms of control, monitoring, projects selection, etc – e.g. to help to define the best suited and efficient monitoring system of financial flows; (viii) assist in finalization (to help LAGs finalize) regional development plans, which will be required for any region to be considered for Leader; (ix) propose an efficient structure of regional offices and activities they would be responsible for; (x) develop a proposal of checklists for paying agency; Page 5 (xi) develop a map of Slovak rural areas to be suitable for leader approach and identify appropriate regions. Component 2: Institutional Capacity Development (EUR 0.65 million) The objective of this component would be to build the capacity in all relevant institutions, and communities, to implement the Leader+ program. The component would provide technical assistance to: (i) enhance the technical capacity in the line Ministries to prepare a general strategy and guidelines for LAGs how to apply for Leader+ implementation over the 2007-2013 period; (ii) enhance technical capacity in the local level authorities to manage new funding; (iii) enhance the capacity of national and local authorities to prepare the initial document from the government defining the areas in which the program will apply, including preparation of all necessary background information, ex ante evaluation, criteria definition for ´Local action groups´ selection, etc., in accordance with EU requirements; (iv) assist regional and local authorities to create necessary structures for implementation of the Leader axis in new programming period; (v) pilot the Leader approach in one or two selected regions (see below Note); (vi) develop a strategy to form the Local Action Groups which will be responsible for submitting and selection of applications, and ultimately implementing sub-projects under the program; and train one or two LAGs in the pilot regions; (vii) provide detailed manuals for training other local people who will be involved in the implementation; and (viii) propose the efficient IT system – datasystem to MoA in order to monitor project selection procedures in local level. NOTE: During preparation/pre-appraisal, determination will be made on whether to separate the pilot activities into a distinct component. Separating the pilots from the other activities might be more appropriate, particularly if the potential government co-financing noted above materializes. 4. Safeguard policies that might apply [Guideline: Refer to section 5 of the PCN. Which safeguard policies might apply to the project and in what ways? What actions might be needed during project preparation to assess safeguard issues and prepare to mitigate them?] 5. Tentative financing Source: ($m.) BORROWER 0 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 1.4 Total 1.4 6. Contact point Page 6 Contact: David A. Bontempo Title: Operations Analyst Tel: (202) 473-5591 Fax: Email: Dbontempo@worldbank.org