The World Bank Second Science & Technology Project (P127308) REPORT NO.: RES32183 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SECOND SCIENCE & TECHNOLOGY PROJECT APPROVED ON APRIL 26, 2013 TO CROATIA FINANCE, COMPETITIVENESS AND INNOVATION EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Arup Banerji Senior Global Practice Director: Ceyla Pazarbasioglu-Dutz Practice Manager/Manager: Marialisa Motta Task Team Leader: Arabela Sena Aprahamian The World Bank Second Science & Technology Project (P127308) ABBREVIATIONS AND ACRONYMS CALT Center for Advanced Laser Techniques Institute of Physics Center of Competence for Translational Medicine Children CCTM Hospital Srebrnjak Component I Proof of Concept Program Component II Development Program for Knowledge-Based Companies Program Component III Sponsored Research and Development Program CSF Croatian Science Foundation ERDF European Regional Development Fund EU European Union ESI European Structural Instruments (ERDF, ESF, etc) HAMAG-BICRO Croatian Agency for Small Business, Innovation and Investment IBRD International Bank for Reconstruction and Development IPR Intellectual Property Rights M&E Monitoring and Evaluation MoF Ministry of Finance MoSE Ministry of Science and Education PMU Project Management Unit PPF Project Preparation Facility PoC Proof of Concept R&D Research and Development SIL Specific Investment Loan STP 2 Second Science and Technology Project TTO Technology Transfer Office UKF Unity through Knowledge Fund The World Bank Second Science & Technology Project (P127308) BASIC DATA Product Information Project ID Financing Instrument P127308 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 26-Apr-2013 31-Mar-2019 Organizations Borrower Responsible Agency Ministry of Science, Education and Sports,Ministry of Croatia Finance Project Development Objective (PDO) Original PDO The development objective of the proposed Project is to support Croatia to absorb EU Funds in the research and innovation sector bycapacitating selected public sector organizations and stimulating the demand for those funds from the business and scientific communities. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-82580 26-Apr-2013 22-May-2013 31-Jul-2013 31-Mar-2019 26.24 20.42 3.77 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Second Science & Technology Project (P127308) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. General: (a) The progress to Project Development Objective (PDO) is satisfactory, on target to be achieved. As evidenced by the results framework indicators there is progress both in terms of outcome and output indicators. Thus, the capacity of the research and innovation public sector to absorb the EU funds has improved. Specifically, the government developed and adopted key strategic documents constituting ex-ante conditionality to use EU funds in R&D area. EUR 12.8 million have been absorbed from EU funds through a R&D grant scheme developed by the Ministry of Science and Education (MoSE), whereas the grant beneficiaries under the UKF have developed a R&D project pipeline worth EUR 24 million for the EU’s Horizon 2020 program, of which some have already been awarded. The MoSE is well advanced in the preparation of the technical documentation for four large R&D infrastructure projects that will apply for European Regional Development Fund (ERDF), for a value estimated at EUR 159 million EUR (out of which 85% or 135 million is a grant from ERDF; and the remaining 15% will be funded from the national component). The project has trained technical staff in the MoSE, and R&D practitioners in Unity for Knowledge Fund (UKF), Croatian Science Foundation (CSF) and HAMAG-BICRO in EU funds management. About 200 knowledge-based companies and public research entities benefited from R&D programs of UKF/CSF and HAMAG-BICRO, which increases the pool of innovative firms and researchers’ groups able to apply for R&D allocations available under EU Funds (b) The implementation progress (IP) is satisfactory, with 90 % of the loan funds contracted and about 78% of the loan funds disbursed. The remaining activities under Component A are mostly concentrated on the finalization of the technical documentation for the research infrastructure projects selected to be implemented with European Funds with a total value of about EUR 150 million. Of them, special attention is given for the timely finalization of the technical documentation for the O-ZIP project of the Rudjer Boskovic Institute in order to ensure the full project implementation with ERDF funds from the 2014-2020 programming period. All the funds under Component B are contracted for both the sub-financing programs managed by CSF/UKF and Hamag-Bicro. 2. Project Status by components: (a) Component A progresses satisfactory. First, several strategic documents required for the absorption of EU funds have been prepared and adopted by the Government namely: (i) the National Strategy on Education, Science and Technology, adopted by the Government in July 2014 ;(ii) the Smart Specialization Strategy, adopted by the Government in March 2016; (iii) the Research Infrastructure Roadmap, revised to be in alignment with the final version of the Smart Specialization Strategy, and endorsed by the European Commission (EC) in September 2016. Second, the preparation of the technical documentation for the four research infrastructure projects selected to be implemented with ERDF funds is advancing. Three projects (the Croatian Scientific and Educational Cloud – HRZOO“, the “Centre for Advanced Laser Techniques – CALT“, and the “Centre of Competence for Translational Medicine at the Children’s Hospital Srebrnjak - CCTM”) received the Action Completion Note from EC/Jaspers. Following the decision of MoSE, a one stage approach is used for the design and construction of CCTM to be funded from ERDF, instead of using loan funds for the design stage and ERDF for the construction phase. The preparation of the project documentation for the largest research infrastructure, the “Open scientific infrastructural platforms for innovative applications in economy and society O-ZIP“, is also progressing well. The PMU and the Rudjer Boskovic Institute monitor closely the work of the consultants as to minimize the delays that may occur in the implementation of the technical assistance due to the technical difficulties and other unforeseen events. (b) Component B progresses satisfactory. Significant implementation progress has been achieved with 96 percent of the funds contracted and 86 percent disbursed. To date about EUR 11.9 million have been contracted and EUR 10.6 million The World Bank Second Science & Technology Project (P127308) was disbursed under this component. Payments are done in instalments in line with the terms and conditions of the sub- financing projects. (c) The financial management is moderately satisfactory and the audit reports are submitted on a timely basis in line with Bank’s requirements. B. Rationale for Restructuring 1. The project accumulated savings of about EUR 1.7 million. Of them, EUR 1.3 million were saved under Component A following the decision of MoSE to use ERDF funds and proceed with an integrated tender for the design and construction of the Centre of Competence for Translational Medicine at the Children’s Hospital Srebrnjak (CHS) instead of using loan funds for the design stage. Additional savings of about EUR 0.4 million were accumulated under Component B as follows: Sub-component B1(i) (Proof of Concept -PoC- Program EUR 106,769), Sub-component B1(ii) (Razum program EUR 1,455) and Sub-component B1(iv) (TTO program EUR 241,181). 2. The Government requested the Bank to allocate these saving to continue funding the PoC program under Component B.1 (i), which cannot be funded otherwise by the ERDF or state budget. The PoC bridges the gap from research to commercialization in the absence of sponsors or venture funds, to build a prototype of products that could then be used to solicit investments for further development. 222 projects selected during the first six calls have been successfully completed or are near completion. The impact of the completed projects is significant: about 60% of them have begun further development activities, 34% started commercialization activities, and about 20% launched new products on the market. II. DESCRIPTION OF PROPOSED CHANGES C. Description of Proposed Changes 1. Change in Results Framework: The proposed changes are needed to reflect the use of project funds following reallocation: (a) PDO Indicator “Total value of projects in the pipeline for funding through the grant scheme managed by Hamag-Bicro (million Euro)”: the target value increases from the current EUR 42 million to EUR 46 million. The increase of EUR 4 million is expected to result from the about 60 new projects that will be positively evaluated in the PoC 7 call. (b) PDO Indicator: Total value of projects funded by CSF/UKF and Hamag-Bicro under the Project sub-financing (EUR million)”: The end target increases from the current target of EUR 17,5 million to the new target of EUR 19.5 million. The increase of EUR 2 million reflects the value of the additional contracts to be funded by PoC7. (c) Intermediate Result Indicator: “Total number of projects financed by Hamag-Bicro”: The end target is increases from the current number of 153 projects to 188 projects, reflecting the increased number of projects funded from PoC7. (d) Intermediate Results Indicator: “Total value of projects financed by Hamag-Bicro (million EUR)”: The end target increases from the current value of EUR 15 million to EUR17.8 million, reflecting the estimated value of new contracts funded under PoC7. (e) Intermediate Results Indicator: Number of products processes/designs developed through Hamag-Bicro programs for which IPR will be sought”: The end target increases from the current 60 to 72, reflecting the expected impact from the new 35 projects funded by PoC7. 2. Change in Components and Cost: The cost of the component A will decrease from EUR 7.6 million to EUR 6.3 million as result of the reallocation of EUR 1,3 million from Component A to Component B. In turn, the cost of Component B will increase by the same amount, from EUR 12.3 million to EUR 13.6 million to allow the implementation of a new PoC call under Component B.1(i). In addition, the Component B 2 will include activities to support the mobility of scientists in order to enhance the flow of knowledge and skills under the Connectivity program with no change in the amount of the loan allocated under Part B.2 of the project (EUR 3,386,700). The World Bank Second Science & Technology Project (P127308) 3. Change in the loan closing date: The government has requested an extension of ten months, from March 31, 2019 to January 31, 2020. This will constitute the second loan closing date extension for a total of 31 months. The extension is necessary for launching and fully implementing the new call (PoC7) under the PoC program. 4. Reallocation between disbursement categories: The reallocation of savings in the amount of EUR 1,278,108.72 from Category (1) “Goods, non-consulting services, training, consultant services for part A of the project, and operating costs and audit for the Project” to Category (2) “Sub-financing under part B.1 of the Project. 5. Change in Disbursement Estimates: the disbursement profile is modified to reflect the use of the project funds for the implementation of the PoC program. 6. Change in Implementation Schedule: The implementation schedule is changed to reflect the new activities related to the implementation of the sub-financing programs contracted under PoC 7. 7. Other: Change in the Financing Plan: The local contribution will increase by EUR 497,376, reflecting the state contribution for the PoC 7 program, reaching EUR 4,2 million after restructuring. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursement Estimates ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ The World Bank Second Science & Technology Project (P127308) Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component A: Capacity Component A: Capacity Building 9.80 Revised Building for absorption of the 8.13 for absorption of the EU Funds EU Funds Component B: Research and Component B: Research and 16.00 Revised 17.67 innovation programs innovation programs TOTAL 25.80 25.80 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IBRD-82580 Effective 30-Jun-2017 31-Mar-2019 31-Jan-2020 31-May-2020 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-82580-001 | Currency: EUR The World Bank Second Science & Technology Project (P127308) iLap Category Sequence No: 1 Current Expenditure Category: G,non CS,TR,CS for Part A,IOC,Audit 7,229,029.90 3,367,483.07 5,950,920.90 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Sub-financing under Part B.1 8,296,296.00 7,770,887.47 9,574,405.00 78.00 78.00 iLap Category Sequence No: 3 Current Expenditure Category: Sub-financing under Part B.2 3,386,700.00 3,230,474.39 3,386,700.00 71.00 71.00 iLap Category Sequence No: 4 Current Expenditure Category: PPF REFINANCING 1,037,974.10 1,037,974.10 1,037,974.10 iLap Category Sequence No: 6 Current Expenditure Category: UNALLOCATED 0.00 0.00 0.00 Total 19,950,000.00 15,406,819.03 19,950,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2013 0.00 0.00 2014 5,477,867.86 5,477,867.86 2015 2,697,684.34 2,697,684.34 2016 3,667,259.27 3,667,259.27 2017 5,320,469.21 5,320,469.21 2018 7,144,494.56 3,191,606.62 2019 1,932,224.76 4,472,135.50 2020 0.00 1,412,977.00 The World Bank Second Science & Technology Project (P127308) The World Bank Second Science & Technology Project (P127308) . Results framework COUNTRY: Croatia Second Science & Technology Project Project Development Objectives(s) The development objective of the proposed Project is to support Croatia to absorb EU Funds in the research and innovation sector bycapacitating selected public sector organizations and stimulating the demand for those funds from the business and scientific communities. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 Increased absorption of EU funds in the research and innovation sector (Action: This Objective is New) Prepared set of innovation and National Science and Ex ante conditionalities for the RIS3 and R&D Infrastructure Smart Specialization Strategy R&D policy documents required for No documentation is available Technology Strategy use of EU funds for R&D are Roadmap prepared prepared absorption of the EU Funds (Text) prepared met ( 3 strategies). Action: This indicator has been Revised Six project proposals prepared for 0.00 0.00 3.00 5.00 6.00 submission to EU Funds (Number) Action: This indicator has been Revised Total value of projects in the pipeline for funding through the grant scheme managed by HAMAG- 3.60 6.50 17.00 30.00 46.00 BICRO (in million Euro) (Amount(USD)) The World Bank Second Science & Technology Project (P127308) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 Action: This indicator has been Revised Total value of projects in the pipeline for funding by EU Funds originated from UKF funded 0.00 0.00 0.00 1.30 24.00 projects (in million Euro) (Amount(USD)) Action: This indicator has been Revised Total value of projects funded by UKF and HAMAG-BICRO under the 2.50 9.50 13.00 13.30 19.50 Project sub-financing (in million Euro) (Amount(USD)) Action: This indicator has been Revised Total value of projects funded by CSF/UKF under the project 0.00 5.36 subfinancing (EUR million) (Amount(USD)) Action: This indicator has been Revised Total value of projects funded by Hamag-Bicro under the 2.50 14.14 Project sub-financing (million EUR) (Amount(USD)) Action: This indicator has been Revised The World Bank Second Science & Technology Project (P127308) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 Component A (Action: This Component is New) Number of trained staff in the MSES and its organizations and R&D institutions (e.g. HAMAG- 8.00 25.00 26.00 28.00 30.00 BICRO, UKF, TTOs, CSF) on EU procedures for project preparation and implementation (Number) Action: This indicator has been Revised Number of workshops and conferences delivered to R&D 0.00 2.00 3.00 4.00 4.00 institutions and beneficiaries (Number) Action: This indicator has been Revised Information system established, functional and accessible to clients 0.00 1.00 1.00 1.00 1.00 (Number) Action: This indicator has been Revised Component B (Action: This Component is New) Total number of projects financed 44.00 119.00 148.00 148.00 188.00 by HAMAG-BICRO (Number) The World Bank Second Science & Technology Project (P127308) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 Action: This indicator has been Revised Total value of projects financed by HAMAG-BICRO (in million Euro) 2.50 7.50 10.00 12.00 17.80 (Amount(USD)) Action: This indicator has been Revised Number of products/processes/designs developed in projects within 0.00 6.00 16.00 22.00 72.00 HAMAG-BICRO for which IPR will be sought (Number) Action: This indicator has been Revised Number of researchers from the public sector included in Program II 4.00 28.00 44.00 44.00 80.00 and III projects within HAMAG- BICRO (Number) Action: This indicator has been Revised Number of foreign research institutions collaborated with by 0.00 10.00 20.00 30.00 49.00 UKF projects (Number) Action: This indicator has been Revised The World Bank Second Science & Technology Project (P127308) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 Total value of projects committed and financed by UKF (in million 0.00 1.00 1.90 2.80 4.60 Euros) (Amount(USD)) Action: This indicator has been Revised Number of collaboration projects between Diaspora and homeland 0.00 5.00 8.00 11.00 32.00 researchers by UKF (Number) Action: This indicator has been Revised Number of commercialization and collaboration agreements signed 0.00 5.00 10.00 15.00 4.00 with industry (Number) Action: This indicator has been Revised Value of collaboration and commercialization agreements 0.00 50.00 100.00 150.00 200.00 signed with industry (in thousands Euro) (Amount(USD)) Action: This indicator has been Revised The share of UKF grants submitted by female applicants (and the share of HAMAG- BICRO's projects 20.00 42.25 submitted) by female applicants) (Percentage) The World Bank Second Science & Technology Project (P127308) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 Action: This indicator has been Revised The share of Hamag-Bicro's projects submitted by female 0.00 26.60 applicants (Percentage) The share of UKF grants assigned to female researchers (and the share of HAMAG-BICRO's projects 10.00 31.43 assigned to female applicants) (Percentage) Action: This indicator has been Revised The share of Hamag-Bicro's projects assigned to female 0.00 20.10 applicants (Percentage) IO Table SPACE . The World Bank Second Science & Technology Project (P127308)