The World Bank PNG Productive Partnerships in Agriculture (P110959) REPORT NO.: RES27838 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF PNG PRODUCTIVE PARTNERSHIPS IN AGRICULTURE APPROVED ON APRIL 29, 2010 TO INDEPENDENT STATE OF PAPUA NEW GUINEA AGRICULTURE EAST ASIA AND PACIFIC Regional Vice President: Victoria Kwakwa Country Director: Michel Kerf Senior Global Practice Director: Juergen Voegele Practice Manager/Manager: Nathan M. Belete Task Team Leader: Stephane Forman The World Bank PNG Productive Partnerships in Agriculture (P110959) ABBREVIATIONS AND ACRONYMS AF Additional Financing DAL Department of Agriculture and Livestock IDA International Development Association IFAD International Fund for Agriculture Development ISM Implementation Support Mission GoPNG Government of PNG PACD PNG Agriculture Commercialization and Diversification Project PDO Project Development Objective PPAP Productive Partnerships in Agriculture Project The World Bank PNG Productive Partnerships in Agriculture (P110959) BASIC DATA Product Information Project ID Financing Instrument P110959 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 29-Apr-2010 30-Jun-2019 Organizations Borrower Responsible Agency Independent State of Papua New Guinea National Department of Agriculture and Livestock Project Development Objective (PDO) Original PDO The Project Development Objective is to improve the livelihoods of smallholder cocoa and coffee producers through the improvement of the performance and the sustainability of value chains in cocoa- and coffee-producing areas. Current PDO Revised PDO is to improve the livelihoods of smallholder cocoa and coffee producers supported by the project. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed COFN-C1370 31-Aug-2014 09-Oct-2015 13-Nov-2015 30-Jun-2019 20.00 10.94 8.90 COFN-C1240 14-Sep-2010 14-Sep-2010 14-Sep-2010 30-Jun-2019 14.00 12.92 .36 IDA-54110 28-Feb-2014 10-Apr-2014 25-Feb-2015 30-Jun-2019 30.00 15.04 12.31 IDA-47160 29-Apr-2010 09-Aug-2010 07-Feb-2011 30-Jun-2019 25.00 23.74 0 The World Bank PNG Productive Partnerships in Agriculture (P110959) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction 1. This Restructuring Paper seeks the approval of the Country Director for a Level 2 restructuring of the PNG Productive Partnership in Agriculture Project’s (PPAP - P110959) Additional Financing (AF - P146003) and subsequent amendment to the Financing Agreement (IDA Credit 5411-PNG and Additional IFAD Co-financing No. C1370) and Project Agreement. The proposed changes are to extend the Project closing date by six months to December 31, 2019, reallocate the credit proceeds between categories and amend targets from the Results Framework’s intermediate indicators. The Extension of closing date and restructuring was requested through two letters from the Department of Treasury (i) one to the Bank dated 20 February 2019 and received by the Bank on 27 February 2019 and (ii) one to the International Fund for Agriculture Development (IFAD). 2. There will be no other change, in the Project Development Objective (PDO), project components, implementation arrangements and safeguards policy. This will be the first extension of the AF’s closing date, for a total of 6 months. B. Rationale for Restructuring 3. The IDA operation of SDR16.4 million (equivalent to US$25 million) for PPAP was approved on April 29, 2010 and was signed on August 9, 2010; the project had co-financing of US$14 million from IFAD. The IDA operation became effective on February 7, 2011. The Additional Financing agreement was approved on April 10, 2014. 4. The implementation of the PPAP Additional Financing was delayed by 28 months due to administrative delays between the government and the Bank in signing the Financing Agreement and the disbursement letter. The Financing agreement was signed on 10th April 2014, became effective in February 25, 2015 and the final Disbursement Letter on 23rd September 2016. The delays significantly affected the launching and implementation of new activities. The signing of the new partnerships’ agreements for the last two grant cycles was postponed to September 2016 and January 2017. The current active partnerships’ agreements will end on June 30, 2019 which also is the end date of the PPAP. The up- scaling to additional provinces came with its own challenges, for example the approach to promote Cocoa Pod Borer (CPB)-tolerant clonal planting material took 10 - 12 months as there were no availability of seedling stock upon signing of the grants. Due to limited capacity at the inception (that has now been built-up), the procurement and safeguards of rural feeder roads to be rehabilitated was also delayed, and the last roads rehabilitation contracts were signed in December 2018 only. The World Bank PNG Productive Partnerships in Agriculture (P110959) 5. This restructuring was discussed with the GoPNG during the 14th and 15th Implementation Support Mission (ISM) held in April and October 2018 and reflected in the Aide-memoire, as conditional to last roads contracts being signed and overall project implementation back on track, including disbursement. This is now the case (see below project’s status) and the rationale for such an extension of closing date and reallocation of credit proceeds are: (i) making sure that all feeder roads under rehabilitation can be completed, (ii) allowing Productive Partnerships sub-projects to close smoothly and fine-tune their exit and sustainability strategies, and (iii) allowing the proposed new project under preparation (PNG Agriculture Commercialization and Diversification Project – PACD (P166222)) to overlap for a few months with the PPAP – therefore facilitating transfer of knowledge, lessons learnt and easing the transition. C. Project Status 6. After some months where the PPAP was rated Moderately Unsatisfactory for the overall Implementation progress (IP), mainly because of delays in implementing the Component 3 (Market Infrastructure) on feeder roads rehabilitation that strongly impacted the overall disbursement of the project, the two last missions in September 2018 and December 2018 confirmed that the project was on track and the IP is now upgraded to Moderately Satisfactory (MS). The PDO is to improve the livelihoods of smallholder cocoa and coffee producers supported by the project and remains achievable. For all key PDO indicators and most intermediate ones, the targets have either been reached or are close to be met (cocoa and coffee yields, income of cocoa and coffee smallholders, number of beneficiaries, number of partnerships funded and likely to be sustained). Overall the progress towards achieving the PDO has been consistently maintained at Moderately Satisfactory (MS). 7. The overall Implementation Progress is now also rated Moderately Satisfactory, with an overall disbursement ratio of the IDA/IFAD loan at 76 percent against less than 50 percent one year earlier. There is no major procurement activity remaining before project completion, therefore decreasing the risk of not completing activities by the new proposed date. The FM rating of the Project has been maintained as Moderately Satisfactory. The last FM review noted the continued improvement and management of the FM aspects of the Project, in particular all project audited financial statements, interim financial reports, and submission of Withdrawal Applications, are all up to date. 8. There are no overdue audited financial statements for the agencies responsible for the financial management of project funds for either PPAP or any other projects. The next audited financial statements are not due until 30 June 2019. II. DESCRIPTION OF PROPOSED CHANGES 9. By letters to the WB and IFAD from the Department of Treasury, the GoPNG requested an extension of closing date for the PPAP and a reallocation of proceeds, based on project's projections indicating that it will be challenging to implement all activities and disburse 100 percent of the funds by end of June 2019, notably the roads rehabilitation, and that an extension of six months will be sufficient to finalize full implementation and deliver all expected results. This was discussed during the 15th ISM and recorded in the corresponding Aide-memoire transmitted to the Recipient through the World Bank’s letters dated October 24, 2018. There are no changes proposed in the PDO, project components, implementation arrangements, risks and safeguards. Therefore, this restructuring will encompass: The World Bank PNG Productive Partnerships in Agriculture (P110959)  Closing Date: the AF’s closing date will be extended by six (6) months, as per the official request received from the GoPNG. The new date will be set at December 31, 2019, instead of June 30, 2019.  Reallocation of proceeds: the last Work Plan and Budget submitted to the Bank, integrating the proposed extension of closing date, identified the possibility to reallocate some proceeds between categories. In particular, savings made in Category 2 and 4 - thanks to procurement savings and reduce scope of activities – allowed to increase the amount allocated to Category 3, training where a shortfall was identified and that is also perceived as having strong positive impact on farmers (see section IV. Detailed Changes below).  Results Framework: two targets of Intermediate Indicators (Supported coffee farmers receiving at least 10% quality premiums (Percentage- from 50% to 20%) and Rural roads rehabilitated and maintained as per maintenance agreements (Kilometers – from 200 to 115) are being reduced, confirming discussions held since one year and reflected in ISM Aide-memoires that the current targets were not realistic. The amended Implementation Plan associated with this extension of closing date was also submitted to the World Bank by the DAL PCU. It is now expected that all roads will be completed by September 30, 2019. I. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ The World Bank PNG Productive Partnerships in Agriculture (P110959) Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications COFN-C1240 Effective 30-Jun-2016 30-Jun-2019 30-Jun-2019 30-Oct-2019 COFN-C1370 Effective 30-Jun-2019 31-Dec-2019 30-Apr-2020 IDA-47160 Effective 30-Jun-2016 30-Jun-2019 30-Jun-2019 30-Oct-2019 IDA-54110 Effective 30-Jun-2019 31-Dec-2019 30-Apr-2020 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed COFN-C1370-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: C1370 Consultancies 2,900,000.00 1,353,813.11 2,900,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: C1370 Goods, Services and Input 4,330,000.00 92,385.55 3,464,597.00 100.00 100.00 The World Bank PNG Productive Partnerships in Agriculture (P110959) iLap Category Sequence No: 3 Current Expenditure Category: C1370 Training 1,500,000.00 1,498,779.88 2,653,871.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: C1370 Grants and Subsidies 5,500,000.00 3,861,690.29 5,211,532.00 100.00 100.00 Total 14,230,000.00 6,806,668.83 14,230,000.00 IDA-54110-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: 5411 Consultants' Services 4,030,000.00 1,884,227.84 4,030,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: 5411 Goods and Works 5,970,000.00 123,461.91 4,774,919.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: 5411 Training and IOC 2,100,000.00 2,095,057.57 3,693,441.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: 5411 Prod Part Grants 7,500,000.00 5,140,080.16 7,101,640.00 100.00 100.00 Total 19,600,000.00 9,242,827.48 19,600,000.00 . The World Bank PNG Productive Partnerships in Agriculture (P110959) . Results framework COUNTRY: Papua New Guinea PNG Productive Partnerships in Agriculture Project Development Objectives(s) Revised PDO is to improve the livelihoods of smallholder cocoa and coffee producers supported by the project. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Improved livelihoods of smallholder coffee and cocoa farmers. Number of project beneficiaries (Number) 0.00 60,000.00 Number of female project beneficiaries (Number) 0.00 24,000.00 Number & coverage of partnerships implemented and/or scaled- 0.00 50.00 up and likely to be sustained (Number) Net income of smallholder cocoa growers (in PNG Kina) 1,271.00 1,800.00 (Amount(USD)) Net income of smallholder coffee growers (in PNG Kina) 2,000.00 3,700.00 (Amount(USD)) Cocoa yield among project beneficiaries (kilograms/hectare) 169.00 600.00 (Metric ton) Coffee yield among project beneficiaries (kilograms/hectare) 382.00 600.00 (Metric ton) PDO Table SPACE The World Bank PNG Productive Partnerships in Agriculture (P110959) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Productive Partnerships Number of hectares of cocoa replanted or rejuvenated with improved planting material and applying improved practices 0.00 15,000.00 (Number) Number of hectares of cocoa planted with diversified crops 0.00 7,000.00 (Hectare(Ha)) Number of hectares of coffee applying improved management 0.00 15,000.00 practices. (Number) No. of women benefiting from improvements in production, marketing & livelihood, including participation in functional 0.00 40,000.00 literacy/numeracy & nutritional improvements linked to farming- as-a-business & ma (Number) Market Access Infrastructure Km of rural roads rehabilitated and maintained as per 0.00 115.00 Maintenance Agreements (Kilometers) Action: This indicator has been Revised Supported coffee farmers receiving at least 10% quality 0.00 20.00 premiums (Percentage) Institutional Strengthening and Industry Coordination Number of policy, strategy, and regulatory measures adopted or 0.00 6.00 implemented (Number) IO Table SPACE The World Bank PNG Productive Partnerships in Agriculture (P110959) The World Bank PNG Productive Partnerships in Agriculture (P110959)