Document of The World Bank FOR OFFICIAL USE ONLY Report No: 87609-NI INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PAPER ON A PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF SDR 34.9 MILLION (US$54.1 MILLION EQUIVALENT) AND A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 1.9 MILLION (US$2.9 MILLION EQUIVALENT) AND RESTRUCTURING FOR THE RURAL ROADS INFRASTRUCTURE IMPROVEMENT PROJECT TO THE REPUBLIC OF NICARAGUA May 22, 2014 Sustainable Development Department Central American Country Management Unit Latin American and the Caribbean Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rate Effective: April 30, 2014) Currency Unit = SDR 1 SDR = US$1.54969 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS Banco Centroamericano de Integración Económica (Central American BCIE Bank for Economic Integration) CEPREDENAC Central American Coordination Center for Disaster Prevention CPS Country Partnership Strategy DA Designated Account DHS Demographic and Health Survey DL Disbursement Letter DRM Disaster Risk Management ECLAC Economic Commission for Latin America and the Caribbean EMP Environmental Management Plans ESA Environmental and Social Assessment ESA Social Impact Assessments ESMF Environmental and Social Management Framework FM Financial Management FMA Financial Management Assessment FOMAV Fondo de Mantenimiento Vial (Road Maintenance Fund) GDP Gross Domestic Product GoN Government of Nicaragua IBRD International Bank for Reconstruction and Development IDA International Development Association IDB Inter-American Development Bank IE Impact Evaluation IFR Interim Financial Reports IPPF Indigenous Peoples Planning Framework ii IRM Immediate Response Mechanism IRR Economic Internal Rate of Return JICA Japanese International Cooperation Agency LMI Lower Middle Income Countries LSMS Living Standard Measurement Survey Ministerio del Ambiente y los Recursos Naturales (Environment and MARENA Natural Resources Ministry) Módulos Comunitarios de Adoquinado (Community Modules for MCA Adoquines) Marco de Gasto Sectorial del Mediano Plazo (Sector-wide Medium Term MGSMP Expenditure Framework) Ministerio de Transporte e Infraestructura (Ministry of Transport and MTI Infrastructure) NPV Net Present Value ORAF Operational Risk Assessment Framework PCR Physical or Cultural Resource PNGR National Policy for Disaster Risk Management PRRD Plan for Disaster Risk Reduction RED Road Economic Decision Model SDR Special Drawing Rights Sistema de Ejecuciones de Planes de Adquisiciones (Procurement Plans SEPA Execution System) Sistema Nacional para la Prevención, Mitigación y Atención de Desastres SINAPRED Secretaría Ejecutiva (National System for Prevention, Mitigation and Attention to Disasters Executive Secretariat) UGA Unidad de Gestión Ambiental (Environmental and Social Management Unit, MTI) Unidad Coordinadora de Recursos-Banco Mundial (Resources UCR-BM Coordination Unit-World Bank) Vice President: Jorge Familiar Acting Country Director: Maryanne Sharp Country Manager: Camille Nuamah Sector Director: Ede Jorge Ijjasz-Vasquez Sector Manager: Aurelio Menendez Task Team Leader: Stephen Muzira iii REPUBLIC OF NICARAGUA ADDITIONAL FINANCING FOR THE RURAL ROADS INFRASTRUCTURE IMPROVEMENT PROJECT CONTENTS Project Paper Data Sheet v Project Paper I. Introduction 1 II. Background and Rationale for Additional Financing 1 III. Proposed Changes 4 IV. Appraisal Summary 8 Annex 1: Revised Results Framework and Monitoring Indicators 12 Annex 2: Operational Risk Assessment Framework 15 Annex 3: Detailed Description of Modified or New Project Activities 18 Annex 4: Revised Estimate of Project Costs 22 Annex 5: Revised Implementation Arrangements. 24 Annex 6: Gender and Impact Evaluation 33 iv ADDITIONAL FINANCING DATA SHEET Nicaragua Additional Financing Rural Roads Infrastructure Improvement Project ( P146845 ) LATIN AMERICA AND CARIBBEAN LCSTR . Basic Information – Original Project Parent Project ID: P123447 Original EA Category: B - Partial Assessment Current Closing Date: 30 November 2016 Current EA Category: B - Partial Assessment Basic Information – Additional Financing (AF) Scale Up /Cost Project ID: P146845 Additional Financing Type: Overrun/Restructuring Regional Vice President: Jorge Familiar Proposed EA Category: B - Partial Assessment Acting Country Director: Maryanne Sharp Expected Effectiveness Date: 30 September 2014 Sector Director: Ede Jorge Ijjasz-Vasquez Expected Closing Date: 30 November 2017 Sector Manager: Aurelio Menendez Report No: 87609-NI Team Leader: Stephen Muzira Borrower/Recipient Organization Name Contact Title Telephone Email Ministry of Transport and Cristhel Guzman Director 505-2222-5913 Cristel.Guzman@mti.gob.ni Infrastructure Project Financing Data – Parent ( Rural Roads Infrastructure Improvement Project-P123447 ) Key Dates Approval Signing Effectiveness Original Closing Revised Closing Project Ln/Cr/TF Status Date Date Date Date Date P123447 IDA-50280 Effective 13-Dec-2011 19-Dec-2011 12-Mar-2012 30-Nov-2016 30-Nov-2017 P123447 IDA-H7440 Effective 13-Dec-2011 19-Dec-2011 12-Mar-2012 30-Nov-2016 30-Nov-2017 Disbursements Undisburs Project Ln/Cr/TF Status Currency Original Revised Cancelled Disbursed % Disbursed ed P123447 IDA-50280 Effective XDR 3.90 3.90 0.00 2.38 1.52 61.03 P123447 IDA-H7440 Effective XDR 18.60 18.60 0.00 10.19 8.41 54.81 v Project Financing Data – Additional Financing Additional Financing Rural Roads Infrastructure Improvement Project ( P146845 ) [ ] Loan [ X ] Grant [ ] Other [X] Credit [ ] Guarantee Total Project Cost: US$66.47 million Total Bank Financing: US$57.00 million Financing Gap: US$0.00 million Financing Source – Additional Financing (AF) Amount BORROWER/RECIPIENT US$9.47 million International Development Association (IDA) US$57.00 million New US$52.16 million Recommitted US$4.84 million Total Bank Financing US$57.00 million Total Project Costs US$66.47 million Policy Waivers Does the Project depart from the CAS in content or in other significant No respects? Does the Project require any policy waiver(s)? No Team Composition Bank Staff Name Title Specialization Unit Ramiro I. Jauregui Counsel Legal Specialist LEGLE Noreen Beg Senior Environmental Specialist Environmental Specialist LCSEN Jason Paiement Social Development Specialist Social Specialist LCSEN Francisco Rodriguez Procurement Specialist Procurement Specialist LCSPT Bexi Jiménez Consultant Economist LCSTR Elizaveta Perova Economist Gender & Impact Evaluation Specialist LCSPP Miriam Muller Research Analyst Gender & Impact Evaluation Specialist LCSPP Raul Barrios Sr. Country Operations Officer Country Operations Officer LCCNI Enrique Román Financial Management Specialist Financial Mgmt. Specialist LCSFM Licette Moncayo Program Assistant Program Assistant LCSTR Mayela Murillo Program Assistant Program Assistant LCCNI Patricia Hoyes Senior Finance Officer Disbursements CTRLD Fernanda Balduino Finance Analyst Disbursements CTRLD Stephen Muzira Sr. Transport Engineer Team Leader LCSTR vi Non Bank Staff Name Title Office Phone City Locations Country First Administrative Location Planned Actual Comments Division Nicaragua Department of Department of X Jinotega Jinotega Nicaragua Department of Department of X Matagalpa Matagalpa Nicaragua Department of Department of X Managua Managua Nicaragua Department of Department of X Boaco Boaco Nicaragua Department of Department of X Chontales Chontales Nicaragua To Be Determined To Be X Other Departments may be added Determined as necessary depending on prioritization and approval processes of new roads. Institutional Data Parent ( Rural Roads Infrastructure Improvement Project-P123447 ) Sector Board Transport Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Co- Mitigation Co- benefits % benefits % Transportation Rural and Inter-Urban 70 Roads and Highways Public Administration, Law, and Public administration- 10 Justice Transportation Transportation General transportation 10 Industry and Trade Agro-industry, 10 marketing, and trade Total 100 vii Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Rural development Rural services and infrastructure 50 Financial and private sector development Infrastructure services for private sector 30 development Financial and private sector development Small, and Medium Enterprise Support 20 Total 100 Additional Financing Additional Financing Rural Roads Infrastructure Improvement Project (P146845) Sector Board Transport Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Co- Mitigation Co- benefits % benefits % Transportation Rural and Inter-Urban 80 Roads and Highways Public Administration, Law, and Public administration- 5 Justice Transportation Transportation General transportation 10 Industry and Trade Agro-industry, 5 marketing, and trade Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable X to this Project. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Rural development Rural services and infrastructure 60 Financial and private sector development Infrastructure services for private sector development 15 Financial and private sector development Small, and Medium Enterprise Support 20 Social protection and risk management Natural disaster management 5 Total 100 viii I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional grant in the amount of SDR 34.9 million (US$54.1 million equivalent) and an additional credit in the amount of SDR 1.9 million (US$2.9 million equivalent) to the Republic of Nicaragua for the Rural Roads Infrastructure Improvement Project (P123447; Grant Number H7440-NI; Credit Number 5028-NI;). The proposed Additional Financing (AF) would: i) finance cost increases under the rural road improvements and maintenance component; ii) scale up road improvement and routine maintenance activities, and iii) restructure the Project. This paper also seeks approval to: revise the Project Development Objective (PDO), trigger two new safeguard policies and add new activities. In parallel, the following changes are being undertaken: incorporation of an Immediate Response Mechanism (IRM) component; introduction of a sub-component on results based minor routine maintenance; updating of the Project’s results framework; and extension of the closing date of the original grant and credit to November 30, 2017, consistent with the new proposed closing date of the Project. II. Background and Rationale for Additional Financing in the amount of US$57.0 million equivalent. 2. Country Context. Poverty has declined in Nicaragua in recent years, but significant challenges remain in the fight against poverty and with respect to boosting shared prosperity. Nicaragua is one of the Latin American and the Caribbean (LAC) region’s least developed countries with a Gross National Income per capita of US$1,650 in 20121. The country had an income growth rate in 2011 of 5.1 percent, the highest in a decade; which surpassed average performance for LAC and Central America (4.0 percent and 0.6 percent, respectively). The second half of the last decade brought a notable reduction in poverty and inequality. In contrast to the 2001-2005 period in which poverty essentially stayed constant at 48 percent, the country saw a significant reduction in the poverty headcount of nearly 6 percentage points (equivalent to around 230,000 fewer poor people), reaching a national rate of 42.5 percent in 2009. Meanwhile, extreme poverty fell from 17.2 to 14.6 percent between 2005 and 2009. Poverty is concentrated in the rural areas:. by 2009, more than one in four Nicaraguans that reside in rural parts of the country was unable to meet their basic food needs compared to around 6 out of 100 in urban areas. Despite progress made, challenges remain on poverty reduction and the enhancement of shared prosperity given that most of the poor live in rural areas and many in remote communities where access to basic services is still constrained by very limited infrastructure, including rural roads. The country is also considered vulnerable in terms of natural disasters, extreme climatic conditions, and epidemics. 3. Nicaragua’s economic development is often negatively affected by devastating natural disasters, which set back the country’s social and economic progress. Its geographic location in the Central American Isthmus makes it vulnerable to hurricanes, droughts, fires, volcanic eruptions, tsunamis, and earthquakes. Following Hurricane Mitch in 1998, vulnerability to natural disasters was seen as impinging on development in all sector development issues. Efforts to address this challenge are being tackled at the national level through the National System for Prevention, Mitigation and Attention to Disasters Executive Secretariat 1 Estimate in current US$ (Atlas Method), World Development Indicators database. 1 (SINAPRED), and are also gradually being integrated into policy and administrative actions in Ministries using SINAPRED data in their planning, and with increased coordination at regional levels. 4. Sector Background. The major challenges for the Nicaraguan road transport sector are: (i) infrastructural deficiencies in the form of an under-developed road network, (ii) an increasing maintenance burden in the face of a static and inadequate cost recovery base; and (iii) increasingly frequent natural disasters that cause significant damage to road and bridge infrastructure. Nicaragua holds the lowest quality of road infrastructure in Central America. According to the Ministry of Transport and Infrastructure (MTI), the road network totals 23,897 km, of which only 14 percent is paved. The basic core road network (8,074 km) has around 44 percent of the roads in good or fair condition. However, when the total universe of roads is considered, this percentage falls to only 25 percent in good or fair condition. The insufficiency of other transport modes primarily water and air transport systems, makes the road network vital to the country’s overall economic development. 5. Project Background and Performance. The Rural Roads Infrastructure Improvement Project, financed with an IDA grant of US$29 million and an IDA credit of US$6 million, was approved by the Board on December 13, 2011 and became effective in March 2012. MTI and the Road Maintenance Fund (FOMAV) are the agencies responsible for the implementation of the Project. The original Project Development Objectives (PDO) are to: (a) improve the access of the rural population living in the Project areas to markets, and to social and administrative services through: (i) the carrying out of improvements in the Recipient's road infrastructure, and (ii) the strengthening of MTI's institutional capacity for asset and disaster risk management; and (b) support the generation of short-term employment opportunities for the rural population living in the Project areas. The Project comprises three components. Component 1: Rural Road Improvements and Maintenance (US$30.0 million, of which US$25.50 million is financed by IDA); Component 2: Institutional Development (US$3.4 million, IDA financed) and Component 3: Project Management (US$0.95 million, IDA financed). 6. The primary beneficiaries of the original Project are the rural population living in priority centers of productivity, with the initial count of beneficiaries of selected rural roads amounting to about 74,445 people, of which 50.5 percent are women. The primary beneficiaries refer only to the rural population benefiting directly from the proposed road interventions. The indicator on accessibility improvements in the results framework is measured at the country level to capture the country progress in the total rural population universe benefiting from improved roads in Nicaragua (latest estimates of about two out of every five rural Nicaraguans having access to an all-weather road). 7. Project Performance. Project performance to date is satisfactory, and the Project remains on course to achieve its development objectives. The Project has nearly achieved two of the three PDO indicators: (i) increase in the share of the rural population with access to an all- weather road has increased from a baseline of 36.86% to a current estimated 38.02 percent versus final target of 41 percent (with the supplemental number of rural people with access increasing from 945,831 to 989,162); (ii) roads in good and fair condition as a share of total classified roads is at 29.71 percent versus final target of 32 percent (with the supplemental km of 2 total classified roads increasing from 23,647 to 24,033), and exceeding target of 23,800 km. For the third PDO indicator: increase in the share of the rural population expressing satisfaction with the quality of the road network, a baseline value of 13.5 percent was measured. Given intermediate survey results, it is expected that the end-of-Project target of 70 percent will be met. Progress has also been made with respect to intermediate indicators, of which one has been achieved and some are close to being achieved: (i) completed detailed road inventory and condition survey of core road network and uploaded into the MTI database; (ii) percentage increase in women working at the Community Modules for Adoquines (MCA) (34 percent vs. a target of 25 percent); and (iii) increase in the number of opportunities for short term employment and empowerment (664 vs. a revised target of 2180). On physical targets, 32 km out of the target 88 km of rural road improvements have been completed, while 14 km out of the 40 km of periodic maintenance have been finalized. 8. Rationale for Additional Financing. The proposed AF would cover unanticipated cost increases, scale up successful activities, and restructure the Project in order to further increase its development effectiveness. The cost overruns arose due to a change in surfacing from adoquines to concrete on one Project road section (due to traffic and climate considerations), that resulted in higher costs, as well as similar increases in costs on the periodic maintenance section. The scale-up is proposed to increase the scope of the rural road improvement and maintenance activities. The proposed restructuring on routine maintenance is aligned with the Project development goal of institutional strengthening in the aspect of road asset management. It would contribute to the sustainability of the MCA model, and also ensure the long-term preservation of Project investments for maintenance of the road network. The AF is also aligned with the higher-level objectives enshrined in the Government’s National Plan for Human Development, especially on its first and sixth component (development of the road infrastructure in the productive zones of the country and attention to vulnerability to environmental impacts and natural disasters, respectively). Project interventions have already demonstrated tangible impacts in transforming the targeted communities, with more reliable, more efficient transport journeys and helping to catalyze socio-economic movements and upward mobility especially in the agricultural and associated business sectors. If access to markets is difficult, farmers are less likely to diversify their production to include cash crops or engage in other income producing activities. Without such new ideas and opportunities, poverty remains an endemic feature of rural life. Better roads can lower transaction costs associated with agricultural activities by reducing the costs of acquiring inputs, transport costs, losses due to perishing of products due to unfavorable road conditions, and by increasing output prices, and permitting entry into new and more profitable activities. In addition, paving previously unpaved roads is expected to promote better living conditions due to dust amelioration. With the Additional Financing, an additional 90,922 people have been identified as Project beneficiaries to date, of which 49 percent are women. 9. With the AF, the Project will continue to contribute to overcoming the above- mentioned challenges in line with the strategic areas identified in the Nicaragua Country Partnership Strategy (CPS)2. The most relevant CPS strategic areas addressed by the Project 2 The International Development Agency and International Finance Corporation Country Partnership Strategy (FY2013-2017) for the Republic of Nicaragua (Report No. 69231-NI) discussed by the Executive Directors on October 3, 2012. 3 relate to raising welfare by improving access to quality basic services and raising incomes through enhancement of competitiveness and the diversification of exports. The first element is addressed by the road infrastructure improvements (both paving and maintenance). The second element is supported by the improvements in management capacity (road asset management to ensure better condition routes, and improved resilience to natural disasters that improve reliability of journeys). The AF is aligned with the World Bank’s twin goals of ending extreme poverty by 2030 and promoting shared prosperity. The AF is expected to promote shared prosperity for the poorest 40 percent by improving accessibility conditions to markets, services and social and economic opportunities. 10. Additional Financing Alternatives considered. Other sources of financing were considered including counterpart funding and other donor financing. Given the heavy infrastructure needs in the country, and the constrained funding available to MTI, additional financing to a well performing Project was considered as the preferred alternative. Donor funds have been sourced for other investment priorities in the National Transport Plan. III. Proposed Changes 11. Project Development Objectives (PDO). The GoN and the Bank have agreed to include an Immediate Response Mechanism (IRM) to allow the country to have access to a contingent financing that would allow for a rapid and effective response capacity of the country in the case an emergency occurs. With this change, and with more appropriate reformulation of the original text, the Project PDO is being revised to: (a) improve the access of the rural population living in the Project areas to markets, and to social and administrative services through: (i) the carrying out of improvements in the Recipient's road infrastructure, and (ii) the strengthening of MTI's and FOMAV’s institutional capacity for road asset and disaster risk management; (b) support the generation of short-term employment opportunities for the rural population living in the Project areas; and (c) to improve the country’s capacity to respond promptly and effectively to an eligible emergency. 12. Project Components. Revisions to the Project’s components are being proposed: introduction of a new sub-component 1.3: results based minor routine maintenance; and new component 4: Immediate Response Mechanism as summarized below. 13. Sub-component 1.3 Results based minor routine maintenance (with a US$1.0 million allocation): FOMAV has taken on increased responsibility for maintenance of the paved road network. It is currently piloting the results based minor routine maintenance on the adoquines roads by converting MCA members into small micro-enterprises. This is a welcome endeavor that would give sustainability to the MCA model, and also ensure the long-term preservation of Project investments. For these reasons, this new sub-component is proposed for inclusion into the Project, targeting a total of 75 km of result based routine maintenance. The results element is related only to the technical maintenance aspects and not to disbursements. 14. Component 4: Immediate Response Mechanism (With an initial zero allocation. In case this component is activated, it will be completely financed with IDA funds): Given that Nicaragua is a country that is highly prone and greatly vulnerable to natural disasters, this component is 4 being proposed for incorporation into the Project with zero allocation. This component allows for the possibility to access IDA resources for eligible expenditures in case of a natural disaster. 15. With the Additional Financing, an extra financial allocation has been made to components 1, 2 and 3 (See Table 2 further below). As a result, the physical targets for component 1 are being revised as shown in Table 1 below. Details for the revisions in targets are presented in Annex 3. Table 1: Revised physical targets Component Original Achievable AF target Total Target with Project parent target Project Sub-component 1.1. Rural 88 km 80 km 105 km 185 km Road Improvements Sub-component 1.2. 40 km 23 km 40 km 63 km Periodic Maintenance Sub-component 1.3 Results n/a n/a 75 km 75 km based minor routine maintenance 16. Results Framework. The results framework is proposed to be modified to be consistent with the new targets driven by the scaled up activities in Component 1; and to take into account baseline and monitoring studies undertaken to date. A new indicator is being added for the new sub-component 1.3, and the new component 4. Refer to Annex 1 for more detailed information. 17. Safeguards. Two new safeguards policies are triggered. Given that a significant amount of IDA resources has been made available, financing of new road investments in other areas of Nicaragua which meet the agreed prioritization and approval criteria and processes (Annex 3) is being proposed. Since these additional roads cannot be identified or approved in advance, two new safeguards policies are triggered on a preemptive basis: OP/BP 4.10 (Indigenous Peoples) and OP/BP 4.12 (Involuntary Resettlement). For more details see paragraphs 7-19 in Annex 5. 18. Project Financing. The estimated Project costs and financing are as shown in Table 2 below. Table 2: Project Cost and Financing 5 Original Project Additional Financing Project cost IDA Project cost IDA Project Components (US$ Financing % (US$ Financing % million (US$ million Financing million (US$ million Financing equivalent) equivalent) equivalent) equivalent) 1. Rural road improvements and 30.00 25.50 85% 63.14 53.67 85% maintenance 1.1 Rural road improvement 26.40 22.44 85% 56.08 47.67 85% 1.2 Periodic maintenance under FOMAV 3.60 3.06 85% 5.88 5.00 85% 1.3 Results based minor routine - - - 1.18 1.00 85% maintenance 2. Institutional Development 3.40 3.40 100% 2.0 2.00 100% 2.1 Institutional Strengthening of MTI 2.00 2.00 100% 1.0 1.0 100% 2.2 Institutional Strengthening of FOMAV 0.50 0.50 100% 0.5 0.5 100% 2.3 Studies and Designs 0.90 100% 0.5 0.5 0.90 100% 3. Project Management 0.95 0.95 100% 1.33 1.33 100% 4. Immediate Response Mechanism - - - 0.0 0.0 100% Contingent Total Baseline Costs* 34.35 29.85 66.47 57.00 Physical contingencies (at 5%) 1.72 1.72 100% 0.00 0.00 100% Price contingencies (at 10%) 3.43 3.43 100% 0.00 0.00 100% Total Project Costs 39.50 35.00 66.47 57.00 * The physical and price contingencies have been built into the rural road improvement and periodic maintenance sub-components (on a 15 percent annualized basis). 19. Closing Date. The closing date of the original grant and credit would be extended to November 30, 2017, consistent with the new proposed closing date of the Project. 20. Implementation and Fiduciary Arrangements. No change in fiduciary and implementation arrangements are envisaged, with the main implementing agencies as MTI and FOMAV. MTI will continue to be the institution with overall responsibility in the implementation of the Project. MTI is in charge of signing a Cooperation Agreement with the maintenance agency FOMAV to detail the terms and disbursement of funds marked for use by FOMAV under the Project. Under this agreement, FOMAV will implement the periodic maintenance and routine maintenance parts of the Project. MTI will continue to assign many of the day-to-day operations to the coordination unit Unidad Coordinadora de Recursos –Banco Mundial (UCR-BM) that serves as an interlocutor with IDA, and is the central point of contact for Project related queries and transactions processing including Project construction implementation, contracting, supervision, fiduciary and safeguards management and compliance, as well as all institutional development activities. The Project Operational Manual has been updated to reflect the inclusion of: (i) new components; (ii) new amounts, (iii) new road sections; (iii) new safeguard policies; and, (iv) beneficiaries identified to date. The final version of the Operational Manual, acceptable to the Bank, is a condition of effectiveness, and will incorporate all changes made as a result of this additional financing. Summary of Proposed Changes 6 Change in Implementing Agency Yes [ ] No [ X ] Change in Project's Development Objectives Yes [ X ] No [ ] Change in Results Framework Yes [ X ] No [ ] Change in Safeguard Policies Triggered Yes [ X ] No [ ] Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ X ] No [ ] Change in Legal Covenants Yes [ ] No [ X ] Change in Loan Closing Date(s) Yes [ ] No [ X ] Cancellations Proposed Yes [ ] No [ X ] Change in Disbursement Arrangements Yes [ ] No [ X ] Reallocation between Disbursement Categories Yes [ ] No [ X ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ X ] No [ ] Change in Institutional Arrangements Yes [ ] No [ X ] Change in Financial Management Yes [ ] No [ X ] Change in Procurement Yes [ ] No [ X ] Change in Implementation Schedule Yes [ ] No [ X ] Other Change(s) Yes [ ] No [ X ] Finance Loan Closing Date - Additional Financing Rural Roads Infrastructure Improvement Project - P146845 ) Source of Funds Proposed Additional Financing Loan Closing Date International Development Agency 30- November - 2017 Allocations - Additional Financing Rural Roads Infrastructure Improvement Project - P146845 Source of Allocation (in million) Disbursement % (Type Total) Currency Category of Expenditure Fund Proposed Proposed IDA USD Category 1 Part A 53.67 85% IDA USD Part A.1 47.67 85% IDA USD Part A.2 5.00 85% IDA USD Part A.3 1.00 85% IDA USD Category 2 Part B 2.00 100% IDA USD Category 3 Part C 1.33 100% IDA USD Category 4 Part D 0.00 Total: 57.00 IV. Appraisal Summary 7 21. Economic and Financial Analysis. The proposed road investments for both rural road improvements and periodic maintenance demonstrate strong economic viability with net socio-economic benefits to society, and offer compelling value for money in the use of public resources. The MTI following a multi-criteria approach that has been used satisfactorily over the last years to decide investments in the sector has around 1,600 km of prioritized roads to be paved of which 401.12 km have studies and designs. From this portfolio five sections were selected due to their priority ranking among the population demands and the multi-criteria analysis. The priority rural road sections are located mainly in highly productive zones and support poverty reduction efforts (See Annex 3 for more details). A discount rate of 12 percent has been adopted. The economic evaluations conducted for the rural roads (using the Road Economic Decision Model – RED model) demonstrate the economic viability of the proposed investments with the Internal Rate of Return (IRR) ranging from 13 percent to 19 percent and Net Present Value (NPV) ranging from US$ 0.908 million to US$8.568 million. For the periodic maintenance of the road Managua- El Rama road section to be intervened, the HDM-4 model was used yielding an NPV of US$3.35 million and an IRR of 37.5 percent. The table below demonstrates the results of the economic analysis for road sections identified to date. Road NPV (US$ No. Name of road section Type of Intervention Kms IRR (%) Code Millions) 1 NN-66 El Cuá – San José Bocay Rural road improvement 10.00 8.568 19.00 2 NN-66 El Portillo – El Cuá Rural road improvement 11.58 2.474 18.00 3 NIC-56 Santa Lucia – Boaco Rural road improvement 4.80 0.908 16.00 4 NIC-19A Esquipulas – Emp. San Dionisio Rural road improvement 11.20 0.927 13.00 (Sub-Section San Dionisio-Planta Ocalca) 5 NIC-7 Managua – El Rama Periodic maintenance 22.83 3.35 37.50   22. Technical. Based on experience in the execution of past Projects, the technical aspects have been solidified with a mix of good design, best practice, and adaptation of solutions to the country context. The main technical considerations are: (i) the choice of adoquines as the main surfacing solution under the rural road improvements, and asphalt overlays for the periodic maintenance (ii) the choice to include local communities in the construction delivery process using the community development modules (MCAs), (iii) sub- contracting earthworks and adoquines supply to the private sector, (iv) adaptation with the incorporation of differentiated design approaches to include more hazard resilient measures in more vulnerable roads; and (v) following existing right of way design approaches with minimal changes to vertical and horizontal alignments. Road designs follow country geometric and pavement design norms. The asphalt resurfacing follows standard country technical specifications which are in line with international standards. Special considerations are integrated for road safety and drainage provisions. 23. Procurement. Procurement arrangements for the original Project would remain in place. Procurement for the proposed AF would be carried out in accordance with the World Bank’s Procurement Guidelines, and the provisions stipulated in the Financing Agreement. For each contract to be financed by the AF, the different procurement methods or consultant 8 selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank in the Procurement Plan. The assessment of the implementing agencies capacity to implement procurement actions for the Project was updated in December 2013, and current procurement arrangements are considered adequate. The Implementing agency will maintain its capacity for selecting consultants and procuring goods, works and services for the Additional Financing. The Operational Manual has been updated and provides detailed procurement information for the Project’s implementation. The Recipient has prepared an acceptable Procurement Plan to be made available through the Procurement Plans Execution System (SEPA). Procurement arrangements for the Immediate Response Mechanism (IRM) Component are described in the IRM Operational Manual. 24. Annual Procurement Audits. To maintain sound procurement processes, MTI will: i) have all the procurement records and documentation for each fiscal year of the Project audited, in accordance with appropriate procurement audit principles, by independent auditors acceptable to the Bank; ii) furnish to the Bank the procurement audit report and; iii) furnish to the Bank such other information concerning the procurement records, documentation and reviews. The scope of this Audit will include the procurement/selection transactions carried out by MCAs. 25. Financial Management. A financial management assessment was carried out to evaluate the adequacy of financial management arrangements under the proposed IDA Credit/Grant and concluded that MTI has adequate capacity to carry out the financial management functions. Financial management performance is rated satisfactory with financial reports presented on time, and with no outstanding audits. The FM arrangements will remain largely the same as under the original Project. Further details are presented in Annex 5. 26. Gender Mainstreaming and Impact Evaluation. Women and men might have different needs and priorities with respect to rural roads – particularly given their differences in use and needs of public services. At the same time, they may have different opportunities to participate in decision making on the choice of infrastructure services, as well as in design and implementation of transport projects. Based on these assumptions, the Project promotes women´s participation in in the community modules responsible for resurfacing of roads with adoquines (MCAs). There is no reliable information on either the effects of female participation in MCAs, or on the relative impacts of the Project on men and women related to access to services, markets etc. A qualitative study as well as an Impact Evaluation (IE), with the focus on gender, will be conducted in order to bridge these knowledge gaps. This work will provide valuable information for shaping and improving gender actions under ongoing and future Projects. 27. Social and Environmental Analysis. The original Project does not have any unresolved environmental, social and/or other safeguard problems. The original Project provided technical assistance and training on social and environmental safeguards to both MTI and FOMAV. This experience has helped both road sector agencies to improve the quality of their assessment and management of social and environmental issues. In the case of MTI, this experience has encouraged the agency to produce an Environmental and Social Management Framework (ESMF) that details applicable legislation, policies, procedures and institutional responsibilities. The ESMF is fully consistent with relevant sectorial best practice and applicable 9 World Bank operational policies. The ESMF will apply to the screening, selection, design, implementation and supervision of yet to be identified road sections under the Project. 28. As the Additional Financing will be used in part to finance an unspecified set of eligible road works, two new safeguards policies have been triggered and will be applied. The Project is not expected to require any land acquisition or involuntary resettlement, however because the exact locations and design specifications for the proposed investments—for example, localized road realignments, the elimination of accident-prone points — remain unknown at this time OP 4.12 is being triggered and a Resettlement Policy Framework (RPF), part of the ESMF, has been prepared, consulted and was disclosed on May 15, 2014. The RPF clarifies resettlement principles, institutional arrangements, and design criteria to be applied to new road sections to be prepared during Project implementation. Similarly, the proposed Additional Financing may result in new road sections to be selected that are located in areas occupied or claimed by Indigenous Peoples. As the exact locations of the Project activities will be determined during Project implementation, an Indigenous Peoples Planning Framework (IPPF) has been prepared, consulted and was disclosed as an integral part of the unified ESMF on May 15, 2014. The IPPF will assist the MTI to determine whether indigenous peoples are present in any of the Project areas, and if so, to ensure that the interested communities support the proposed activities as well as any additional measures required to maximize their culturally appropriate benefits and/or avoid potentially adverse impacts. 29. The recipient has also prepared site-specific Environmental and Social Assessments (ESAs) which include the respective Environmental and Social Management Plans (ESMPs) for each of the civil works activities under rural road improvements and periodic maintenance identified to date that will be funded by the AF. Under the parent Project, all road works took place within the existing road right of way, without any need to acquire land or displace any physical assets. Furthermore, there were no indigenous peoples present in any of the Project areas. These ESAs were consulted with local stakeholders and published on the Recipient’s websites (MTI and FOMAV respectively) and on the World Bank’s external website during the month of January 2014. The original Project is rated as Environmental Category B, and given the moderate and reversible impacts of works under the proposed AF; the rating of Category B is maintained. In addition to triggering OP/BP 4.10 (Indigenous Peoples), and OP 4.12 (Involuntary Resettlement), the Project also triggers OP/BP 4.01 (Environmental Assessment), OP/BP 4.04 (Natural Habitats), and OP/BP 4.11 (Physical Cultural Resources). The road maintenance activities to be undertaken under sub-component 1.3 are minor works that fall within the existing right of way. Prior to carrying out any routine maintenance activities, an environmental and/or social assessment of the proposed minor works will be done in accordance with the standard operating procedures for environmental and social management of small scale impacts set forth in accordance with the requirements of the Operational Manual. If applicable, FOMAV will prepare a plan acceptable to the World Bank which shall incorporate the results of the assessment; and thereafter implement the plan in accordance with its terms and in a manner acceptable to the World Bank. 30. Risk. The overall risk for the Project is determined to be Moderate. The potential key risks of the Project include: (i) managing the large number of contracts and processes under the MCA approach; (ii) sustainable maintenance of the road network; and (iii) risks of cost overruns. A number of mitigation measures have been introduced to address these risks; namely: (i) to 10 mitigate the risk of managing a large number of contracts and processes under the MCA approach the Operations Manual has been updated with the exact processes for the procurement of work under MCA; in addition, MTI has technically competent engineers and surveyors who are in charge of design checks; and a supervision quality firm is to be contracted to ensure quality standards are maintained during implementation; (ii) to mitigate the risk that investments do not receive adequate maintenance after road improvements have been made, a results based routine maintenance sub-component has been introduced to support sustainability efforts; the use of annual agreement between MTI and FOMAV sets out the maintenance mandate for FOMAV; and finally, a study is underway to review the role, structure, financing and sustainability of FOMAV that will inform recommendations on how to strengthen and improve FOMAV to carry out its maintenance mandate; and (iii) to mitigate the risk of cost overruns prudent cost control mechanisms have been put in place, and a contingency allocation has been made for reasonable price contingencies in the civil works cost estimates. Also, the use of MCAs further mitigates this risk as they are end beneficiaries, and are therefore incentivized to control costs. 11 ANNEX 1: REVISED RESULT FRAMEWORK AND MONITORING Nicaragua: Rural Roads Infrastructure Improvement Project Project Development Objectives (PDO): The Project’s objectives are to: a) improve the access of the rural population living in the Project areas to markets, and to social and administrative services through: (i) the carrying out of improvements in the Recipient's road infrastructure, and (ii) the strengthening of MTI's and FOMAV’s institutional capacity for road asset and disaster risk management; (b) support the generation of short-term employment opportunities for the rural population living in the Project areas; and (c) to improve the country’s capacity to respond promptly and effectively to an eligible emergency. Core Cumulative Target Values ** Responsibility Description (Indicator PDO Level Results Unit of Data Source/ definition, etc.) Baseline YR 1 YR 2 YR 3 YR 4 YR 5 Frequency for Data Indicators* Measure Methodology (2012) (2013) (2014) (2015) (2016) Collection Indicator One: Increase in the share of rural population with access Core indicator intended to and all weather road to measure progress (living within 2km of an towards improved (i)36.86% 37.0% 38.0% 39.0% 40.0% 41.0% all season road) (i) Proportion accessibility for the rural UCR-BM, Commissioned, population in the whole 37.07% 38.02% Annual MTI (i) Proportion Surveys, GIS country. MTI information from own (ii) Number (ii) Number (ii) 945,831 958,690 989,162 999,054 1,009,044 1,019,135 Projects and Projects with other sources of financing. 958,690 989,162 Indicator two: Roads in good and fair Core indicator intended condition as a share of Percentage 29.0% 29.5% 30.0% 30.5% 31.0% 32% to measure progress total classified roads UCR-BM, towards improved 29.59% 29.71% Reports from Planning condition of the core Annual MTI-PMS unit Dept, MTI road network. MTI Supplemental (km of km 23,647 - - - - 23,800 planning department total classified roads) database to provide information. 23,897 24,033 Indicator Three: Indicator intended to increase in the share of measure progress the rural population towards improved - - - 70% Commissioned UCR-BM, indicating satisfaction 13.5% Start and accessibility for the rural Percentage 13.5% Road User MTI with the quality of the 13.5% End population and their Surveys road network perception of the quality of their roads. Project to finance 12 Cor Cumulative Target Values ** Responsibility Description (Indicator PDO Level Results e Unit of Data Source/ definition, etc.) Baseline YR 1 YR 2 YR 3 YR 4 YR 5 Frequency for Data Indicators* Measure Methodology (2012) (2013) (2014) (2015) (2016) Collection INTERMEDIATE RESULTS Intermediate Result (Component One): Intermediate Result indicator One: Increase in opportunities for short term employment and Short term employment (i) Number (i) 0 (i)120 (i)300 (i)970 (i)2180 (i) 2840 Annual empowerment Reports from monitoring, and women 0 0 664 UCR-BM (i) Additional no. MTI empowerment (ii) Employed in MCAs supervisors monitoring Percentage (ii) 19% (ii)20% (ii)22% (ii)24% (ii)25% (ii) 26% Annual (ii) Percentage of women 0 0 34% in MCAs Intermediate Result Indicator Two: Improved reliability of the transport infrastructure by Measurement of surfacing to more progress towards durable options improved reliability of (i) km upgraded to the transport 0 8 20 80 133 185 Annual Project adoquines/concrete (i) km UCR –BM infrastructure by 0 32 Progress standard delivering physical Reports (ii) km asphalted under finished road outputs 0 5 25 40 46 63 Annual periodic (ii) km with more durable maintenance 0 14 surfacing - - Intermediate Result Measurement of travel Indicator Three: time savings in line with Reductions in travel Travel time 2.9 2.8 2.6 2.3 1.5 1.5 Project progress on surfacing of Annual UCR-BM times on improved rural (hours) 2.293 2.29 1.88 Progress rural roads. Indicator roads under free flow Reports represents total travel conditions time on 90.32 km Intermediate Result Measurement of Indicator Four: km of kilometers of pilot road Project UCR-BM roads under results based km 0 0 0 75 75 75 Annual sections under the results Progress FOMAV minor routine based routine Reports maintenance maintenance model 3 Baseline established for free flow travel times on 90.53km including all Parent Project roads and prior constructed km on Quebranda Honda-Sao Francisco Libre road, and using Leon-Lechecuagos, and Leon La Ceiba in lieu of Mina El Limon road financed separately. 13 Intermediate Result (Component Two): Intermediate Result indicator One: Detailed road inventory and Yes Semi- UCR-BM, Project Progress on asset condition survey of core N/a None None Yes Yes Yes annual Planning Dept Progress management road network completed Yes of MTI Reports and results uploaded into MTI database Intermediate Result Semi- Yes Yes indicator Two: Design N/a None None Yes annual Project MTI (UCR- Progress on managing manual for managing Progress BM, UGA) geo-technical risks geotechnical risks in No Reports road Projects finalized Intermediate Result Semi- N/a None Yes Yes Yes Yes Project Progress on reforming indicator Three: annual UCR-BM, Progress main maintenance FOMAV reform study FOMAV No No Reports agency FOMAV completed Intermediate Result Progress on delivering a indicator Four: program of works that Comprehensive can attract other donors adoquines roads and financiers and Semi- program in the N/a None None Yes Yes Yes Project UCR-BM, contribute to eliminating annual productive zones of the Progress Planning Dept the infrastructure country finalized and No Reports of MTI backlog. Also laying the report published and foundation for future shared with other consideration of donors alternative IDA lending instruments Intermediate Result indicator Five: UCR-BM, Progress on human Additional number of Number 0 10 15 25 30 40 Annual Project MTI, FOMAV resource capacity MTI and FOMAV staff Progress building within MTI and receiving training under 0 4 27 Reports FOMAV the capacity building initiatives Intermediate Result (Component Three): This is a Project Management Component and no specific intermediate indicators are included. Intermediate Result (Component Four): Intermediate Result indicator One: time IRM taken to disburse funds Time (weeks) Max. 4 Max. 4 Operational requested by the Manual Government for an eligible emergency * Please indicate whether the indicator is Core Sector Indicator ( see further http://coreindicators) **Target values should be entered for the years data will be available, not necessarily annually 14 ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK NICARAGUA: AF Rural Roads Infrastructure Improvement Project (P146845) Project Stakeholder Risks Rating Moderate (M) Description: Perceptions of the Project among stakeholders is Risk Management: Improved access to and availability of Project information positive. PDOs closely aligned with priorities and needs of Promote participation in environmental assessments and employment opportunities stakeholders. Possible resistance of some Managua base The Project also ensures private sector stakeholders’ participation in the Project delivery through representatives of private construction sector to the community the earthworks construction works, and in the provision and supply of adoquines. A private modules approach contractor is also in place to deliver concrete surfacing works on one of the road sections. Resp: Bank and Stage: prep/impl Due Date: recurrent Status: Ongoing recipient Capacity Rating: Low (L) Description: Risk Management: The Bank will continue to review both implementation and supervision action Risk that the Implementation Agency may not have the plans to improve capacity in the fiduciary area, financial management and procurement procedures necessary capacity to manage the Project effectively due to of MCAs. MTI will prepare Interim Financial Reports (IFRs) on a semiannual basis for the World weakness remaining in financial management and procurement, Bank’s review. This review would enhance Financial Management supervision, enabling periodic especially in administration of community driven contracts control over the proposed Project’s accounts, which would complement the planned supervisions, (MCAs) is considered to be low. Both the MTI and its thus helping to mitigate fiduciary risk. coordination unit are well staffed, and have significant experience with IDA financed road Projects, systems, processes, safeguards, and procedures with satisfactory performance. MTI presents normally no internal control weaknesses. They have Resp: Bank /client Stage: impl Due Date: recurrent Status: Ongoing formalized policy, procedures and operational manual and MTI normally complies with them. Governance Rating: Moderate (M) Description: Risk Management: Risk of poor accountability and lack of transparency in the Proposed AF is designed to strengthen governance and accountability and promote community decisions made pertaining to the Project, especially in the participation (in follow-up to previous work using the community modules (MCA) and process of road selection, is perceived to be low. However, the involvement of the local authorities e.g. mayors). It also integrates transparency initiatives like impact of a potential criticism of bad governance would be high publicizing Project information and progress and media communications on Project with reputational consequences for IDA and the Recipient. implementation. Resp: Client Stage: impl Due Date: recurrent Status: Ongoing 15 Project Risks Design Rating: Moderate (M) Description: Risk Management: An updated manual is included in the Operations Manual detailing the exact Potential risk of lapses in Project performance arising out of a processes for the procurement of works under the modulos communitarios approach. Moreover, the heavy administrative burden due to a high number of small Project coordination team (URP in Spanish) at MTI has technically competent engineers and contracts to manage. The laying of adoquines in Nicaragua is surveyors who will carry out design checks before contracting, and during contract well known with experience across the board from the public to implementation. Supervision quality control firm is also contracted to ensure that quality control the private sector. However, the potentially high numbers of does not fall through the cracks. These steps will be cross-confirmed during Project contracts that have to be managed could be a source of implementation. administrative burden and performance shortcomings. Resp: Client Stage: prep/impl Due Date: recurrent Status: Ongoing Social & Environmental Rating: Moderate (M) Description: Risk Management: Road investments financed by this Project might have some The Project will develop a training program for the municipalities and communities about social social and/or environmental impacts, and there is the risk of an and environmental impacts and mitigation measures. erroneous evaluation and consequently inadequate mitigation of those impacts. Similar previously IDA-funded Projects in the Consultation and information functions at the municipalities where the works are proposed will be road sector did not require any involuntary resettlement, impacts incorporated into the Project before works begin. This includes ensuring that stakeholders know on indigenous peoples or significant adverse environmental who is responsible for the Project at the central level in case of a grievance or need for redress. impacts, and none are expected during the design or implementation of the proposed Project. MTI prepared, consulted and disclosed a Resettlement Policy Framework (RPF) and an Indigenous Peoples Planning Framework (IPPF) as integral parts of the unified Environmental and Social As the Additional Financing will be used to finance an Management Framework (ESMF). Project-specific ESAs have also been prepared, consulted and unspecified set of eligible road works, two new safeguards disclosed for sub-Projects that have been identified. policies (OP 4.10 and OP 4.12) will be applied. MTI has During Project preparation, past performance and capacity assessments were done, strengthening developed appropriate environmental and social manuals and the screening and impact identification process. procedures that will be applied during Project design and implementation. The existing setup will ensure compliance with Prior to appraisal, the IDA team reassessed the adequacy of MTI’s existing safeguards National legislation and Bank safeguard requirements. management tools, procedures and institutional arrangements against the nature and scope of the Environmental and Social Assessments (ESA) and potential impacts of proposed Project. These were found to be adequate for the proposed Project. Environmental Management Plans (EMP) have been prepared MTI will sign a cooperation agreement with the maintenance agency FOMAV to detail the terms for all identified road sections. and use of funds marked for use by FOMAV under the Project. There is low risk of lack of institutional capacity within FOMAV to implement environmental and social safeguards. The social and environmental risks associated with the Project Resp: Bank /client Stage: impl /preparation Due Date: recurrent Status: Ongoing are limited due to the nature and location of the proposed interventions. Given the relatively benign nature of such risks, 16 the MTI (UGA) has the demonstrated capacity to ensure that all road works and maintenance activities are performed in compliance with OP 4.10 and OP 4.12. Program & Donor Rating: Low (L) Description: Risk Management: There are few donors investing in transport sector right now in Continued dialogue with donor counterparts. Nicaragua: JICA, IDB and BCIE. Thus, more coordination is needed to ensure efficiency in the investments. Resp: client Stage: impl Due Date: recurrent Status: ongoing Delivery Monitoring & Sustainability Rating: Moderate (M) Description: Risk that investments do not receive adequate Risk Management: To mitigate this risk, a results based minor routine maintenance sub- maintenance after road improvements are made. component has been introduced to support sustainability efforts being piloted by the maintenance agency FOMAV. Also, an annual agreement is signed between MTI and FOMAV to set out the maintenance mandate for FOMAV on the “maintainable” roads in the country. There is also a study financed under the parent Project that is underway to review the role, structure, financing and sustainability of FOMAV, and make recommendations as to how it can be strengthened and improved in carrying out its maintenance mandate. Resp: Bank/client Stage: preparation Due Date: preparation Status: Ongoing Cost Overruns Rating: Moderate (M) Description: Risk of cost over-runs is linked to potential Risk Management: To mitigate this risk, prudent cost control mechanisms are in place to review worldwide and local increases in construction materials and proposed designs to ensure robust engineers’ estimates, and variation order control during inputs prices, and consequent higher than expected bid prices. If implementation to ensure that the Project remains within budget. From the original Project, a costs are higher than estimated, the Project would be unable to margin for quantity and price contingencies was built into the Project design (15 percent), which achieve its target estimates. would help mitigate some cost overruns. Since civil works still maintain some cost overrun risk factor, even with all the mitigation measures in place, a 10 percent price contingency has been included in the Project costing. Also, the use of the MCAs mitigates this risk, as these entities are more receptive to modifications in line items for purposes of cost control and have a high vested interest in the achievement of Project outcomes, and not merely the commercial profit incentive. The fact that cost information from other similar contracts that are ongoing is available also provides a comparison base that further mitigates this risk. Adherence to selected Project designs will also help to mitigate this risk. Resp: Bank/client Stage: preparation Due Date: preparation Status: Ongoing Overall Risk Implementation Risk Rating: Moderate Risk Description: Overall risks noted in the ORAF above, have accompanying mitigation measures and are considered to be manageable. 17 ANNEX 3: DETAILED DESCRIPTION OF MODIFIED OR NEW PROJECT ACTIVITIES 1. Project Components. Revisions to the Project’s components are being proposed: introduction of new sub-component 1.3: results based minor routine maintenance; and new component 4: Immediate Response Mechanism. The targets and works to be undertaken have also been revised for component 1. The revisions in components and targets are presented in detail below. Components 2 and 3 have had an extra financial allocation as indicated in the Project Cost and Financing table (Table 2 of the main text). 2. Component 1. Rural Road Improvements and Maintenance. Sub-component 1.1. Rural Road Improvements: Due to unanticipated cost increases, the Original Project cannot reach its targets (only 80 km will be achieved). Therefore, this AF will cover the remaining 8 km, as well as increase the target by including an additional 97 km (total AF of 105 km) for a total revised target of 185 km. These road improvements will continue to be constructed primarily using the MCA modality that has been tried and tested in previous Projects with adoquines or other paved surfacing. Road sections identified to date to be financed under the AF with funds of this sub- component include: El Cua – San Jose Bocay (10 km); El Portillo – El Cua (11.58 km); Santa Lucia – Boaco (4.8 km); and Esquipulas – Empalme San Dionisio, sub-section San Dionisio- Planta Ocalca (11.2 km). In addition to these identified roads, an extra 67 km of rural roads of yet to be specified roads will also be paved to give the total Project estimate of 185 km. 3. The identified road locations departments (Jinotega, Matagalpa, and Boaco) are among the most productive zones of Nicaragua, focusing especially in agricultural production (basic grains and beans) and livestock activities. For example, Jinotega department is among the leaders in the production of coffee, corn, beans, and beef and other cattle products; Matagalpa is among the leaders in the production of coffee, corn, rice, sorghum, beans and beef and other cattle products; Boaco is among the leaders in the production of rice, and of beef and other cattle products. The commonalities of the catchment zones of all identified priority roads is an intensive agricultural and livestock production with the main products being coffee, beans, basic grains, corn, vegetables and cattle and its by-products. All the identified departments to date are in the Central zone of the country where rural poverty incidence stands at 68.8%, and extreme poverty at 29.3%. 4. Further roads to be financed with remaining Project funds will need to comply with the following criteria: (i) form part of the priority expenditure framework of MTI, or prioritized in the National Transport Plan; (ii) be justified on technical and economic grounds with the corresponding documentation; (iii) need to have the accompanying social and environmental studies and documentation that are to the satisfaction of the implementing agency and the Association, in accordance with the ESMF (including RPF and IPPF), and in line with the Association’ norms, and policies. 5. Sub-component 1.2. Periodic Maintenance: Also due to unanticipated cost overruns, this component will only achieve 23 km out of the original 40 km target. The AF will finance the outstanding 17 km, and include an additional 23 km (total AF of 40 km); for a total revised target of 63 km. The road section identified for periodic maintenance with an asphalt overlay, and final 18 road marking, signing, and road safety installations is a 23km stretch between km 143 and km 166 on the Managua-El Rama road. Any new road/road section to be financed for periodic maintenance intervention with remaining Project funds will need to comply with the following criteria: (i) national trunk road forming part of the priority intervention list of FOMAV; (ii) be justified on technical and economic grounds with the corresponding documentation; (iii) need to have the accompanying social and environmental studies and documentation that are to the satisfaction of the implementing agency and the Association, and in line with the Association’ norms, and policies. 6. New Sub-component 1.3 Results based minor routine maintenance: The maintenance agency FOMAV has taken on increased responsibility for maintenance of the paved road network. It is currently piloting the results based minor routine maintenance on the adoquines roads and connecting road sections (paved or unpaved) by converting MCA members into small micro-enterprises. This is a welcome endeavor that would give sustainability to the MCA model, and also ensure the long-term preservation of Project investments. For these reasons, this new sub-component is proposed for inclusion into the Project. 7. The results based routine maintenance contracts will have set standards that have to be complied by the micro-enterprises in their work. The results element is related only to the technical maintenance aspects and not to disbursements. FOMAV will meet the costs of the preliminary works necessary to bring the road sections to an acceptable standard before responsibility is transferred over for maintenance to the micro-enterprises. This activity is designed in such a way that FOMAV will also provide the necessary materials and equipment as necessary to support the micro-enterprises in carrying out their duties. A total of approximately 75 km of roads are proposed to receive result based routine maintenance under a new pilot of micro-enterprises formed out of outgoing members of the community development modules (MCAs) who constructed the adoquines roads. The pilot program is to be implemented on two road sections: Quebranda Honda-San Francisco Libre (34.38 km), and Cardenas-Colon (40.88 km) on a two year pilot basis. The proposed works are minor works, and all within the existing right of way. 8. New Component 4: Immediate Response Mechanism. (With an initial zero allocation. In case this component is activated, it will be completely financed with IDA funds). Given that Nicaragua is a country that is highly prone to natural disasters, this component is being proposed for incorporation into the Project with zero allocation. This component allows for the possibility to access IDA resources for eligible expenditures in case of a natural disaster. Refer to section below for more detailed information. 9. In addition to its general susceptibility to external shocks, Nicaragua is specifically vulnerable to disasters. Its socio-economic development has been historically slowed down by devastating disasters generated in both the Pacific and the Atlantic oceanic environments, or by a complex tectonic system responsible for the country’s seismic and volcanic activity. As a result, the country is seriously affected by climate-related phenomena such as droughts, hurricanes, El Niño-Southern Oscillation and its associated events, including floods and landslides, along with geological events (e.g., earthquakes and volcanic eruptions). 19 10. Only in the last five years Nicaragua has witnessed the effects of five highly destructive tropical storms and hurricanes, which caused significant social suffering and devastating economic and financial losses. As is common in such situations, basic social infrastructure has been the most harshly affected, specifically water and sewerage systems, school and hospital buildings, housing, the transport system and the agricultural sector. The GDP is lost or diverted to respond to emergencies and recovery from these disasters illustrates clearly Nicaragua’s inherent vulnerability: the 2001 droughts caused a loss of 2.15 percent in the GDP; the 2007 Hurricane Felix was responsible for 14.4 percent GDP loss; heavy rains of 2007 in the north- western region and the 2011 Tropical Depression 12E, wiped out 3 and 6.8 percent of the GDP, respectively. While precise GDP losses for the 2009 Hurricane Ida are not available, they were most likely significant. Adjustments to the country program under the 2008-2012 CPS were required to accommodate government requests for assistance after Hurricane Felix (2007), the food and oil price crisis (2008), and the onset in 2009 of the HlNl flu epidemic. Such events contributed to large fiscal deficits and debt accumulations requiring Nicaragua to restructure its public debt in 2007 and created challenges during the previous CPS implementation. Severe budget constraints, at the same time, have limited Nicaragua's ability to finance adaptation and mitigation activities. 11. Nonetheless, encouraging progress was evident as early as 2000 when solid legal and institutional arrangements for Disaster Risk Management (DRM) were established through the National System for Disaster Prevention, Mitigation and Response (SINAPRED). This framework, supported by the Bank and other donors, has facilitated the formulation of the National Policy for Disaster Risk Management (PNGR) together with its comprehensive 2010- 2015 National Disaster Risk Management Plan (PNGR). It is notable that PNGR is aligned with the Regional Policy (PCGIR) and Plan for Disaster Risk Reduction (PRRD), as promoted by the Central American Coordination Center for Disaster Prevention (CEPREDENAC) and the Hyogo Framework for Action at the global level. 12. Risk Assessment at the sector level and the formulation of a national financing strategy for risk management are two of the most relevant potential contributions planned by the Bank in the 2013-2017 CPS, along with the continued support to strengthen institutional and coordinating capabilities of SINAPRED and its ability to integrate municipal levels in DRM efforts. In this regard, Nicaragua’s access to emergency response funds through the Project’s IRM as in other Projects across the country portfolio would complement the national disaster risk financing strategy by providing resources to respond immediately to an eligible emergency. 13. The proposed Project, as part of its PDOs, would strengthen Nicaragua’s capacity to respond promptly and effectively to an eligible emergency. This objective will be achieved through the provision of rapidly accessible IDA financial resources in the aftermath of a crisis or emergency through the use of the IRM agreed by the GoN and the Association. 14. Consistent with the IRM’s goals, financial resources will be made available to Nicaragua after an eligible emergency in a reduced period of time. This approach builds on the flexibility provided by OP 10.00 (Investment Project Financing), the Proposal for an IDA Immediate Response Mechanism (IDA/R211-0303, November 4, 2011, and the Guidance Note from OPSPQ dated April 9, 2013 that provide rapid access to a portion of their undisbursed IDA 20 balances to address immediate post –crisis financing needs. Accordingly, implementation arrangements and fiduciary and safeguards requirements, which will be detailed in an Operational Manual, will seek to ensure smooth implementation of post-emergency response based on rapid and effective disbursement of available funds. 15. The IRM component would be made operational by including a contingent window with zero allocation under the proposed AF. If an eligible emergency does occur (as defined in the Operational Manual for the IRM) during the life of the Project, Nicaragua would be able to access funds, depending on its financing needs, through the IRM window. Taking into account the objective of this approach, the Government and the Bank have agreed on the definition of eligible emergencies, implementation arrangements, in addition to fiduciary and safeguard requirements. These will be reflected in the IRM operational manual, which will be endorsed by the Government and the Bank. 16. The IRM for Nicaragua will provide financing for a positive list of works, goods, services (including audit costs) and emergency operation costs, required for emergency response and recovery. These expenditures will be in accordance with OP10.00 and would be appraised, reviewed and found to be acceptable to the Bank before any disbursement is made. The eligible expenditures will be defined in the IRM Operational Manual. 21 ANNEX 4: REVISED ESTIMATE OF PROJECT COSTS 1. For the civil works sub-components 1.1 rural road improvements and 1.2 periodic maintenance components, the break-down of costs for identified road sections is as indicated in Table A.4.1 below. Project costs vary depending on the type of intervention, but also on the nature of work necessary to bring the road up to an acceptable standard in terms of width, gradients, road materials, drainage, environmental mitigation measures and road safety measures. Table A4.2 shows the cost break-down for Sub-component 1.3. Tables A4.3 and A4.4 show the cost breakdown for Components 2 and 3 respectively. 2. Since civil works still maintain some cost overrun risk factor, even with all the mitigation measures in place, a 10 percent price contingency and 5 percent physical contingency has been included in the sub-component costing for both the rural road improvement works, and the periodic maintenance works. From Table A4.1, the base 2014 cost per km for rural road improvement works (paving with adoquines) works out on average at about US$402,767. Updating the base cost on an annual basis at 15 percent (for physical and price contingencies), and allowing for a two year maximum ceiling, the risk adjusted cost per km when works are constructed comes to approximately US$533,000. Using this rate, the total number of kilometers rural roads that can be constructed with the additional financing allocation to this sub-component is 105 km. Also, from Table A4.1, the base 2014 cost per km for periodic maintenance works (asphalt overlays and associated works) is US$110,000. Updating this cost on an annual basis at 15 percent (for physical and price contingencies), and allowing for a two year maximum ceiling, the risk adjusted cost per km when these works are executed comes to approximately US$145,500. Using this unit rate, the total number of kilometers that can be periodically maintained with the additional financing allocation to this sub-component is 40 km. Table A.4.1: Cost Break-down of sub-components 1.1 and 1.2 Length Cost/km Total Cost Road Section Type of intervention (km) (US$) (US$) El Cua - San Jose Bocay 10.00 420,000 4,200,000 Paving with adoquines El Portillo – El Cua 11.58 400,000 4,632,000 Paving with adoquines Santa Lucia - Boaco 4.8 380,000 1,824,000 Paving with adoquines Esquipulas – San Dioniso 11.2 400,000 4,480,000 Paving with adoquines (Sub-Section San Dionisio- Planta Ocalca) Sub-total (Sub-component 37.58 15,136,000 1.1) Managua-El Rama 22.83 110,000 2,511,059 Periodic Maintenance (asphalt overlay & associated Works) Sub-total (Sub-component 22.83 2,511,059 1.2) 22 3. For Sub-component 1.3 on the pilot minor routine maintenance, the programmed cost estimates are presented in Table A.4.3. Table A.4.2: Cost Break-down of sub-component 1.3 Total IDA Length Road Section Cost financed Type of intervention (km) (US$) (US$) Quebranda Honda-San 34.38 340,582 289,495 Routine maintenance with payments to Francisco Libre converted MCAs using a results based approach in the maintenance contracts Cardenas-Colon 40.88 835,888 710,505 Routine maintenance with payments to converted MCAs using a results-based approach in the maintenance contracts (US$374,290). Initial financing for preparatory works to bring the road to the desired standard are also included (US$461,598). Sub-total (Sub- 75.26 1,176,471 1,000,000 Pilot Project programmed to be component 1.3) implemented over a two year period. Table A.4.3: Cost Break-down of Component 2 Total IDA Sub-component Cost financed (US$) (US$) Sub-Component 2.1: Strengthening of MTI’s institutional 1,000,000 1,000,000 capacity (including road asset and disaster risk management) Sub-Component 2.2: Strengthening of FOMAV’s 500,000 500,000 institutional capacity (including road asset sustainability management) Sub-Component 2.3: Specific Studies and Designs 500,000 500,000 Sub-total (Component 2) 2,000,000 2,000,000 Table A.4.4: Cost Break-down of Component 3 Total IDA Cost financed (US$) (US$) Supervision Consultant’s services 800,000 800,000 Monitoring and Evaluation, and Impact Evaluation 530,000 530,000 Total (Component 3) 1,330,000 1,330,000 23 ANNEX 5: REVISED IMPLEMENTATION ARRANGEMENTS. FINANCIAL MANAGEMENT 1. A financial management assessment (FMA) was carried out to evaluate the adequacy of financial management arrangements under the proposed Grant and Credit. This assessment has been performed in accordance with OP/BP 10.00 and the Financial Management Manual for World Bank-Financed Investment Operations effective on March 1, 2010. The Project will be implemented by Ministry of Transport and Infrastructure (MTI), and the Road Maintenance Agency (FOMAV) both based in Managua, Nicaragua. Currently, the two agencies are executing IDA 50280, H571-0-NI and H7440. The last ISR has been rated as Satisfactory. 2. The Grant and Credit funding under the Additional Financing is related to works, goods, and consultancy services. a. Staffing. The current Project financial staff arrangements are considered satisfactory. b. Accounting System. At present, MTI keeps all its records and accounts in SIGFAPRO system with the capability to register, verify, control and prepare financial statements and financial reports on the cash-based method of accounting. The records will be centrally maintained registering the advances and then the funds execution once received the expenses support documentation. All the funds will be executed in MTI and it is not expected any transfers to other entities besides FOMAV that is a Co executing Agency in specific components of the Project. c. Internal Controls. MTI normally presents no internal control weaknesses. They have formalized policy, procedures and operational manual and MTI normally complies with them. The current Project Operational Manual (OM) in use for the present Project has been updated by MTI detailing the incremental FM procedures including budgeting, accounting, payments, support documentation, accounts reconciliation and financial reporting, that will include also the Project. An acceptable draft adjusted Operational Manual would be prepared for negotiations and will be completed prior to Project effectiveness. d. Project Financial Reporting. MTI will be responsible for preparing financial information on a semiannual basis and submit the same to the Bank as Interim Financial Reports (IFRs) containing: (i) Statement of Sources and Uses of Funds (with expenditures classified by disbursement category) and Cash Balances; (ii) Statement of Budget Execution (with expenditures classified by components). All documentation for consolidated SOEs would be maintained for post review and audit purposes for up to three years after the closing date of the Project, or for 18 months after receipt by the World Bank of an acceptable final financial audit, whichever is later. The format of IFRs should be reviewed and approved before negotiations. The IFRs would be submitted no later than 45 days after the end of each semester for the World Bank’s review. This review would enhance FM implementation support, enabling 24 periodic control over the proposed Project’s accounts, which would complement the planned implementation support, thus helping to mitigate fiduciary risk. e. External Audit. An external, independent, private audit firm, acceptable to the World Bank under Terms of Reference acceptable to the Bank, will be contracted by MTI for the entire life of the Project no later than five months after the grant’s and credit’s effectiveness to audit Project funds. The audit firm will review and provide an opinion on the Annual Financial Statements, covering the fiscal year (which coincides with the calendar year). The audited financial statements shall be presented to the World Bank no later than six months after the end of the fiscal period. Terms of reference and a short list will be reviewed for the World Bank’s no objection. According to the Bank Policy 10.00, Audited Financial Statements will be made public, as established by Legal Agreement. f. Flow of funds. Two Designated Accounts (DAs) will be opened in Banco Central de Nicaragua, one for the credit and one for the grant with authorized ceilings of US$1,000,000 and US$3,000,000 respectively. These initial amounts could be changed and amended in the respective Disbursement Letter (DL) upon specific request. The DAs shall operate under the traditional mechanism of replenishment based on Statements of Expenditures (SOEs). The disbursements for the proposed Project would be subject to standard and approved World Bank disbursement methods, which would be defined in the DL. These would include reimbursements, advances and direct payments. The Project should maintain all documents and records supporting the expenditures paid with the financing for at least two years after the Project closing date. g. Disbursement Table. It was agreed that it would be best to consolidate the categories in the original financing wherever possible to have the description as close as possible to the categories in the AF. Category 2 was renamed as Goods, Services and Training financed at 100%. A new category 7 is being added to the IRM financed at 100%. The expenditures related to annual audit (consultants services) are only eligible for financing under the original credit (IDA H5028-NI) and grant (IDA H7440-NI). Risk Assessment and Mitigation 3. Risk Rating. Overall FM risk is rated as “Moderate”. The FM arrangements, which include a series of additional measures, respond to the identified risks and provide a suitable supervision strategy. The adequacy of FM arrangements would be continuously monitored during Project supervision, with adjustments made if necessary to ensure fiduciary compliance. Table A.5.1 presents the risk assessment and mitigation measures incorporated into Project design and the FM implementation arrangements. 25 Table A.5.1 – Risk Assessment and Mitigation Measures incorporated into Project design and the FM implementation arrangements Risk Risk Risk Mitigating Measures Rating Inherent Risk Country M The Government is continuing in its efforts to implement a comprehensive PFM Level modernization plan aiming at strengthening its own management capacities as well as upgrading the PFM systems and also the information system SIGFA and supporting its full implementation in the rest of the public sector. Internal control rules and procedures incorporate a set of controls for budget execution that are widely understood but because of the recurrent practice of applying exceptions— allowed by the Law—in particular in procure works, goods and services, those controls are surpassed . Budget execution is controlled thought the SIGFA system. Budget monitoring occurs throughout the year according to the law 550 based on SIGFA information for the Central Government, but there are still deficiencies in monitoring budget execution of municipalities and decentralized entities. Entity Level M MTI is the Agency with overall responsibility in charge of the implementation of the Project. As per precedent, MTI has extensive experience working with WB funds. Project M  Project Administration has prepared and established main financial procedures Level in an operational manual and also written job descriptions for each consultant and staff normally complies with them. Control Risk Budgeting, M  MTI will continue using SIGFAPRO system to register, control and report the Accounting, execution of Project funds. Internal  A basic Operational Manual has to be updated detailing principal FM Control procedures, to be adopted for this Project. Funds Flow M  MTI will submit the withdrawal applications to the Bank, and will make Project payments for the established categories and document Project eligible expenditures to the Bank on a periodic basis.  External Audit will include specific provisions for ensuring coverage of use of funds.  All funds will be centrally executed in MTI and it is not expected any transfers to other entities.  Individual Designated account in dollars, under traditional mechanism of replenishment by SOE method. Financial S  Semiannual Financial Reports. Reporting,  Annual External Audit Financial Statements for the entire Project life. Auditing FM Risk M 26 Financial Management Action Plan 4. An Action Plan to ensure that adequate FM systems are in place before implementation begins. Detailed activities are presented in Table A.5.2. Table A.5.2 Action Plan for MTI Responsible Completion Action Entity Date4 1. Contract external audit satisfactory to the World Bank for the entire implementation period of the MTI December 2014 Project. 2. Update the Operational Manual in its FM Effectiveness MTI procedures Date 3. Provide specific training in FM & Disbursements World Bank Done for Project FM Staff World Bank FM Supervision Plan 5. A World Bank FM Specialist would complete a supervision mission prior to Project’s effectiveness to verify the implementation of the action plan and review all FM arrangements for the Project. After effectiveness, the FM Specialist would review the annual audit report, the financial sections of the semiannual IFRs and perform at least one formal supervision mission per. PROCUREMENT 6. Procurement Special Provisions. In addition and without limitation to any other provisions set forth in this Project Paper, the Procurement Guidelines or the Consultant Guidelines (latest versions for both dated January 2011), the following principles of procurement shall expressly govern all procurement of works, goods, non-consulting services or consultants' services, as the case may be:  Foreign bidders shall not be required to be registered with local authorities as a prerequisite for bidding;  No bids shall be rejected, and no provisional awards shall be made at the time of bid opening;  The invitation to bid shall not establish, for purposes of acceptance of bids, minimum or maximum amounts for the contract prices;  The invitation to bid shall not publish the estimated cost of the contract;  In the case of Shopping, a minimum of three quotations shall be obtained as a condition to award the contract; 4 This column presents the estimated completion date, and is not an indication of legal conditions. 27  Unless the Association may otherwise agree, for the procurement of goods and non- consulting services, the “best offer” shall be the one submitted by the bidder whose offer was determined to be the lowest evaluated bid and was found substantially responsive to the bidding document acceptable to the Association, provided further that the bidder was determined to be qualified to perform the contract satisfactorily;  Bidders and Consultants shall not be allowed to review or make copies of other bidder’s bids or consultants’ proposals, as the case may be. Likewise, bidders’ and consultants’ responses to requests of clarifications made by the procuring entity during the bidding process shall not be disclosed to other bidders or consultants, as the case may be. Finally, reports including recommendations for award shall not be shared with bidders and consultants prior to their publication;  Eligibility criteria shall be the one defined in Section I of the Procurement Guidelines and Consultant Guidelines. Articles 17 and 18 of the Procurement Law shall not apply;  Automatic rejection of bids or proposals, as the case may be, due to differences between bid or proposal prices and cost estimates being higher than predetermined percentages, shall not be allowed;  Bidders shall have the possibility of procuring hard copies of bidding documents even if they are published on the procurement portal;  Unless so indicated in the applicable Bank Standard Bidding Documents, pre-bid conferences shall not be conducted;  Bid preparation terms shall not be reduced as a result of re-bidding;  Consultants shall not be required to submit proposal and performance securities;  Complaints shall be handled as indicated in the appendixes to the Procurement Guidelines and Consultant Guidelines;  The procurement of goods and works shall be carried out using standard bidding documents acceptable to the Association;  The Recipient, shall: (i) supply the SEPA with the information contained in the initial Procurement Plan within 30 days after the Project has been approved by the Association; and (ii) update the Procurement Plan at least every three months, or as required by the Association, to reflect the actual Project implementation needs and progress and shall supply the SEPA with the information contained in the updated Procurement Plan immediately thereafter; and  The invitations to bid, bidding documents, minutes of bid opening, requests for expressions of interest and the pertinent summary of the evaluation reports of bids and proposals of all goods, works, non-consulting and consultants services shall be published in SISCAE, and in a manner acceptable to the Association. The bidding period shall be counted from the date of publication of the invitation to bid or the date of the availability of the bidding documents, whichever is later, to the date of bid opening. 28 ENVIRONMENTAL AND SOCIAL SAFEGUARDS 7. The Project is proposed as category B Partial Assessment - assigned to Projects that are likely to have limited and reversible environmental impacts, that can be readily mitigated. As the Additional Financing will apply in part to an unspecified set of eligible road works, two new safeguards policies (OP 4.10 Indigenous Peoples and OP 4.12 Involuntary Resettlement) have been triggered. The policies triggered, as per the parent Project are: OP/BP 4.01 Environmental Assessment, OP/BP 4.04 Natural Habitats, and OP/BP 4.11 Physical Cultural Resources. Based on OP 4.01, the parent Project was classified as Category B, as the associated potential environmental and social impacts are low to moderate, site specific, and expected primarily during construction. As a result of the Project there will be positive impacts such as reduction in suspended dust from unpaved roads, noise and travel time reductions. The road maintenance component will also improve road surface conditions and drainage, and reduce road erosion. None of the Projects traverse environmentally sensitive zones. Maintenance works involve minor activities such as surface cleaning, repairing of drainage structures, patching of potholes, and resurfacing of asphalt, none of which are expected to have any significant impact. 8. OP/BP 4.01 (Environmental Assessment) is triggered because of the interventions that are entailed under Component 1, which will finance rural roads improvements and periodic maintenance. Only relatively minor negative environmental impacts are expected as a result of the Project, and appropriate mitigation measures have been included in the Environmental and Social Assessments to minimize these impacts. Final versions of all Environmental and Social Assessments for identified Project roads have been disclosed on the website of MTI and in the Bank’s InfoShop. MTI also prepared, consulted and disclosed an Environmental and Social Management Framework (ESMF) that will apply to all yet to be identified road sections. 9. OP 4.04 (Natural Habitats) is triggered only on a precautionary basis. No Project components or activities are expected to directly or indirectly cause any significant conversion of or loss to any existing natural habitats. However, there are some road sections with river crossings, which require protection of riverbeds and/or reforestation to reduce erosion and landslides. In cases where the road may be in the close vicinity of national reserves, (while not traversing them or being directly adjacent), appropriate measures to protect biodiversity will be implemented. 10. OP 4.11 (Physical Cultural Resources) is also triggered on a precautionary basis. All civil works are taking place within the right of way of existing roads, and thus no impact to any physical or cultural resource (PCR) is expected. However, there will be land movements and borrow pit usage, and chance findings may occur. The ESAs submitted to IDA for the parent Project as well as the AF ESAs include chance finding mechanisms and corresponding protocols of action. 11. OP 4.10 (Indigenous Peoples). The proposed Additional Financing may result in new road sections to be selected that are located in areas occupied or claimed by Indigenous Peoples. As the exact locations of the Project activities will be determined during Project implementation, an Indigenous Peoples Planning Framework (IPPF) is being prepared, consulted and disclosed as an integral part of the unified ESMF. The IPPF will assist the MTI to determine whether 29 indigenous peoples are present in any of the Project areas, and if so, to ensure that the interested communities support the proposed activities as well as any additional measures required to maximize their culturally appropriate benefits and/or avoid potentially adverse impacts. 12. OP 4.12 (Involuntary Resettlement). The Project is not expected to require any land acquisition or involuntary resettlement, however because the exact locations and design specifications for the proposed investments—for example, localized road realignments, the elimination of accident-prone points — remain unknown at this time OP 4.12 will apply and a Resettlement Policy Framework (RPF), part of the ESMF, has been prepared, consulted and disclosed. The RPF clarifies resettlement principles, institutional arrangements, and design criteria to be applied to new road sections to be prepared during Project implementation. 13. A Valoración Ambiental y Social (Environmental and Social Assessment ESA) which includes the respective Environmental and Social Management Plan (ESMP) has been prepared for each of the road sections under the parent Project. Each ESA was prepared by a special unit within the MTI, the Environmental and Social Management Unit (UGA). The ESAs have been submitted to the Bank, consulted on with the relevant stakeholders, and disclosed. The corresponding environmental license, issued by the departmental delegation of the MARENA (Ministerio del Ambiente y los Recursos Naturales, Environment and Natural Resources Ministry), was acquired previous to the beginning of works. Each ESA includes an Environmental and Social Management Plan (ESMP) for construction and operation, which details mitigation measures, monitoring, responsibilities and specific procedures (such as waste management plans, and borrows pit management plans when applicable). 14. The ESAs in the parent Project underline that resurfacing of existing dirt roads with adoquines generates significant positive social impacts. In addition to expected positive outcomes and impacts related to reduced transportation costs and increased accessibility to markets and public services, the Project: (i) creates direct and indirect employment opportunities in poor regions where local residents welcome these opportunities to supplement their incomes; (ii) builds valuable technical skills among local residents, including youth and women, that are essential for their productive participation in the new social and economic opportunities created through increased accessibility to markets and public services; (iii) reduce regional disparities and promote the social and physical integration of all residents within the Project areas; (iv) improve road safety; and (v) reduce vulnerabilities to natural disasters, through better road designs and more efficient drainage structures. 15. The same process has been followed for the sub-Projects identified to date and approved under Additional Financing. Final versions of all Environmental and Social Assessments for identified Project roads have been disclosed (after consultations) on the website of MTI and in the Bank’s InfoShop. MTI also prepared, consulted and disclosed an Environmental and Social Management Framework (ESMF) that will apply to all yet to be identified road sections. This ESMF will be re-disclosed as it now contains updated sections covering a Resettlement Policy Framework (RPF) and an Indigenous Peoples Policy Framework (IPPF). The social risks associated with the Project are limited due to the nature and location of the proposed interventions. 30 Consultations 16. Consultations with local stakeholders (including concerned ministries, local municipalities, and residents in proposed Project areas) have been undertaken during the preparation of the environmental and social documents. Minutes of stakeholder meetings, including measures proposed to address grievances, are included as an Annex to the safeguard documents. Recipient capacity in implementing safeguards 17. The MTI will again be the implementing agency for the proposed Project. MTI has managed previous Bank Projects satisfactorily, through a specifically created coordination unit-- Environmental and Social Management Unit (UGA), which has experience with five other Bank lending operations in the roads sector, including the parent Project. This considerable previous experience has enhanced MTI officials’ knowledge of Bank policies and procedures, as well as enabled the smooth operation of Project operations and due diligence on fiduciary and safeguards matters. MTI will maintain overall responsibility for the Project (with line reporting to Minister and Vice Minister) from the Head of the coordination unit. 18. During parent Project preparation, the Bank team assessed the adequacy of MTI’s existing safeguards management tools, procedures and institutional arrangements to the nature and scope of the proposed Project. Given that the scope and nature of all potentially adverse impacts are relatively minor and essentially restricted to the construction phase, both MTI and FOMAV institutional capacity to manage safeguard risks were judged to be satisfactory. Both MTI and FOMAV have now attended workshops to improve their environmental and social management practices, for which the parent Project allocated specific resources under Component 2. As a result of MTI’ s previous exposure to Bank safeguards, the organization has developed appropriate environmental and social manuals and procedures that have guided Project design and will be applied during implementation. The UGA prepared the environmental and social assessments required for the Fourth Rural Roads Project as well as the parent Project and ESAs already identified under AF. MTI has produced an Environmental and Social Management Framework (ESMF) that details applicable legislation, policies, procedures and institutional responsibilities. The ESMF is fully consistent with relevant sectorial best practice and applicable World Bank operational policies. The MTI will apply this ESMF to the screening, selection, design, implementation and supervision of additional road works in the future. The Road Maintenance Fund FOMAV (Fondo de Mantenimiento Vial) will need to continue to rely on the UGA for assistance. This arrangement has proven to be effective during previous Projects. Disclosure 19. The ESAs (including the pertinent ESMPs) were disclosed to the public on January 13, 2014 (El Cuá-San Jose de Bocay, Esquipula-San Dionisio, and Santa Lucía-Boaco) and January 24, 2014 (El Portillo-El Cuá). Consultations were held between April and November 2013. The Managua-El Rama ESA was disclosed in-country on January 20, 2014. The ESMF and ESAs are also available at the offices of MTI and FOMAV, and have been posted on the MTI and FOMAV websites. The ESMF has been re-disclosed both in-country and on the World Bank’s 31 external website as it now contains updated sections covering a Resettlement Policy Framework (RPF) and an Indigenous Peoples Policy Framework (IPPF) on May 15, 2014. 32 ANNEX 6. GENDER AND IMPACT EVALUATION 1. While gender indicators have improved in Nicaragua, over the last years, a number of important gender gaps remain. Although girls outperform boys at all levels of education, women continue to face difficulties in translating these better education outcomes into labor market outcomes. Women’s labor force participation increased from 39.90% in 2000 to 49.09% in 2011; however, it remains below the regional average of 57.85% (2011). The ratio of female to male labor force participation of 0.6 in 2011 underscores women’s disadvantage in the labor market. Similarly, women are more likely to be unemployed compared to men as shown by a female to male unemployment ratio of 1.19 in 2010. 2. With regards to sexual and reproductive health services, Nicaraguan women are still facing several challenges. The fraction of births attended by skilled health staff at 73.7% in 2007 was below the regional average of 85.75% (2000). Related to that, at 95 deaths per 100,000 live births (2010), maternal mortality continues higher than regional averages of 80. 3. With regards to women’s agency – defined as the capacity to take decisions and exercise control over one’s life choices (World Development Report, 2012) – the picture is somewhat mixed in Nicaragua when observing some of the key manifestations of the lack of agency. On the one hand, teenage pregnancy is very high in Nicaragua. At 106.4 births per 1,000 women ages 15 to 19 in 2011, the adolescent fertility rate remains nearly twice as high as the LMI countries’ average of 59. Also, gender-based violence is a serious problem in Nicaragua. The Demographic and Health Survey (DHS 1997/98) revealed that 28 percent of women who were or had been once married had been physically abused by their partner at least once, and 10 percent had been sexually abused (DHS Report 2002). On the other hand, women’s political participation is comparably high: At 40.2% in 2012 it more than doubled both the world and the LMI countries’ averages of 19.0 and 15.7, respectively. Moreover, in 2010 Nicaragua had the highest share of female Ministers in the region: 55 percent (ECLAC). At the local level, women’s voice and political participation is notably lower though: only 24% of city councilors are female (2011, ECLAC). 4. At the same time, these indicators are aggregates and – as observed in LAC countries in general – gender gaps tend to be larger in rural areas and at the same time, there are significant heterogeneities between different regions of the country. In rural contexts, gender norms tend to be more traditional compared to urban ones. Thus, special efforts might be required to ensure women are involved in the decision making process, and in the control and access to resources and opportunities. It is also worth noting that in rural contexts, women tend to travel more for health and education purposes. The literature suggests that in rural areas, considerable time is spent by women and their families waiting for transportation, and in traveling to a health facility. In addition, poor roads, too few vehicles and high transportation costs are major causes of delay in deciding to seek and reach emergency obstetric and postnatal care5. 5. As such, being thus affected by transport decisions and policy; women have an integral role to play in a rural infrastructure development context. Based on these assumptions, the Nicaragua 5 World Bank (2010), “Mainstreaming gender in road transport: operational guidance for World Bank staff”. 33 Rural Roads Infrastructure Improvement Project since its earlier rounds promotes women´s participation in the community modules responsible for resurfacing of roads with adoquines (Modulos Comunitarios de Adoquinado, MCAs), which is an innovative approach of gender mainstreaming in a transport Project. The modules generate employment opportunities in the short term, contribute towards technology transfer and building of technical skills and engender a sense of community and ownership for the roads. Women participate in this context mostly as supervisors of works, heads of MCAs, treasurers, accountants, warehouse wardens and personnel directing traffic movements at construction sites. However, despite the encouragement from the Project, current participation of women in MCAs only reaches 19 percent. 6. Encouragement of female participation in MCAs may have a variety of impacts on participating women, broader community and Project development objectives. For instance, anecdotal evidence (from the Project team) suggests that a higher proportion of women in MCAs may ensure higher implementation quality. Literature suggests that greater participation of women in community life may contribute to changing gender stereotypes (Chattopadhyay and Duflo, 2004). However, it is also plausible that new employment opportunities for mothers may increase the burden of household or caretaking work for older daughters, if the mothers need to free time previously dedicated to household chores in order to work in MCAs. Additionally, the fact that female participation remains relatively low suggests existence of some barriers that prevent women from taking advantage of short-term work opportunities generated by the Project. 7. Apart from explicit integration of gender in the Project design through encouragement of women’s participation in MCAs, other components of the Project may also have impacts on gender equality in the Project community. For example, easier access to the markets may improve women’s employment opportunities, thus changing their bargaining power within the household or creating additional incentives for the girls to get more schooling. At the same time, the Project may also affect some (reproductive) health outcomes, particularly maternal mortality and skilled birth attendance given easier access to professional health facilities. 8. So far, there is no reliable information on either the effects of female participation in MCAs, or on the relative impacts of the Project on men and women related to access to services, markets etc. Bridging these knowledge gaps will provide valuable information for the design and implementation of the new tranches of financing. 9. Currently, a team is working on the following diagnostics: (i) qualitative work, aimed at expanding the understanding of constraints and barriers women face when joining MCAs and working there as well as perceptions of the consequences of their participation by women themselves, other members of the community, household members and Project personnel; (ii) non-experimental impact evaluation of the previous rounds of Project financing, based on existing data, with specific focus on: (a) the variation in impacts depending on the proportion of women in MCAs; (b) gender disaggregated impacts on welfare, human development and productive inclusion outcomes. This work will build on and expand the IE 34 that is currently being carried out by the Project team, using additional sources of data and applying additional methodologies; (iii) non-experimental impact evaluation of the current round of Project financing. The nature of the Project is not very amenable to experimental design; therefore the new impact evaluation will rely on a combination of difference-in-difference and matching to identify the impacts of the new round of Project financing. Baseline data will be collected in the treatment and matched control communities prior to the initiation of the works, and follow-up data will be collected one year after the completion of works. The evaluation will focus on a variety of outcomes, including consumption, incomes, poverty, employment opportunities, health, education, intra-household dynamics and social norms. 10. These diagnostics will contribute to shaping and improving gender actions under the additional financing. Concretely, the following activities are planned: (i) Capacity building of MTI’s and FOMAV’s staff: the results of work done under the Analysis section will be presented at workshops at MTI and FOMAV. The workshops will aim at building M&E and IE skills, and strengthening the capacity of the staff to integrate a gender perspective in their work. (ii) Adjustments in implementation and support to specific interventions will be introduced to ensure women and men benefit equally from Project activities based on the findings from the non-experimental IE and the qualitative work. This might include adjustments in the modalities for women to participate in MCA’s for instance – based on the outcomes of the above mentioned analysis. 11. In addition to these efforts, the Project will also continue to track the percentage of women in the MCAs (current baseline 19%), and monitoring how this evolves over time. Furthermore, whatever actions will result as suggestions from the qualitative study and the non- experimental IE, the Project will ensure to use sex disaggregated M&E strategies. 35